By Tammy Maguire, Principal Updates to the Employee Retention Credit (ERC) were issued by the IRS on Wednesday, August 4, 2021 in Notice 2021-49. The updates focus on the third and fourth quarter ERC calculations. A significant change to the program is the credit is only eligible on the employer portion of Medicare tax; the employer share of Social Security has been removed. The two main qualifying factors remain unchanged:
- A business whose trade or business’s operations were fully or partially suspended due to governmental authority limiting due to COVID-19; or
- A business whose revenue has declined by more than 20% in a calendar quarter 2021 vs. 2019.
The Notice expands the eligible employers to include recovery startup businesses. A recovery startup business is further defined as:
- An employer who is otherwise not eligible based on previous first two qualifying factors;
- Business commenced after February 15, 2020;
- Average annual gross receipts is no more than $1M for the three taxable years preceding the quarter in which the credit is claimed.
- To determine, the taxpayer would annualize revenue for whatever timeframe the business was in operation.
The calculation of the credit will remain at 70% of eligible wages up to $10,000 (maximum credit of $7,000); however, there is a quarterly credit limit of $50,000 for a recovery startup business.
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