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Major Updates to the Employee Retention Credit

YHB has an Employee Retention Credit (ERC) team that is here to help your business through all the trials and tribulations of calculating and filing for the ERC. We keep up to date with all the latest provisions to help you maximize any COVID relief funds!

The IRS released Notice 2021-49 relating to the Employee Retention Credit (ERC). There are three major take-aways from the notice and the proposal from the Bi-Partisan Infrastructure Bill also has an ERC provision.

Here are three major changes to the Employee Retention Credit

Owner Wages for the ERC

One ambiguous area of the law was whether or not owner wages would be allowed for the ERC. In the notice, the IRS has made it clear that almost no owner wages will count for the ERC unless the owner has no living relatives who are brothers, sisters (whether by whole or half-blood), ancestor, or lineal descendant.

If a Business Already Filed for 2020 but Then Takes a 2020 ERC, the 2020 Income Tax Return must be Amended

If a business has already filed it’s 2020 income tax return and then later takes the ERC for tax year 2020, the business will need to amend their 2020 income tax return to reduce the wages paid deduction by the amount of the credit. The reduction in wages for a 2020 ERC cannot be done on a 2021 income tax return.

Tips Count for the ERC

As long as tips are treated as wages, i.e., are in cash and more than $20 a month, they are treated as qualified wages for the ERC.

Bi-Partisan Infrastructure Bill

The Bi-Partisan Infrastructure Bill’s proposed language includes eliminating the ERC for the 4th quarter of 2021. So, companies getting the ERC may want to start planning for not being able to receive it in the 4th quarter of 2021 if this bill passes and this provision survives.

If you have any questions, reach out to your YHB advisor and we can help you out!

Read More Articles on the ERC

Understanding Employee Retention Credits

IRS issues ERC guidance as Congress mulls early termination

Make the most of the Employee Retention Credit

About the Author

Nick Preusch, CPA, JD, LLM, MSA

Nick joined YHB in 2020 with over 15 years of experience in the industry. Nick is a graduate of Carthage College with a BS in Accounting and Business, the University of Connecticut with an MA in Accounting, Case Western Reserve University with a JD, and Georgetown University with an LLM in taxation. Nick has also worked with the Internal Revenue Service as a Revenue Agent and an Attorney with the IRS Office of Professional Responsibility.

Nick’s expertise includes helping high wealth individual and large business entities with complex tax compliance, along with specializing in international, non-for-profit tax issues, and tax ethics issues.