The Supreme Court, today, denied New Hampshire’s motion for leave to file a bill of complaint challenging Massachusetts’ COVID-related tax regulations.  The decision comes little more than a month after the Acting Solicitor General of the United States filed an amicus brief urging the court to deny the motion.  In addition to New Hampshire, the decision will leave New Jersey and other states (nearly fourteen states had filed amicus briefs urging the Court to take the case) disappointed.  The case was seen as an indirect threat to New York’s convenience of the employer rule, which operates similarly to the temporary regulations adopted by Massachusetts.  See earlier coverage here and here.
Continue Reading Supreme Court Denies New Hampshire’s Challenge to Massachusetts Telecommuter Tax Rule; Convenience of the Employer Lives to See Another Day

Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”).  This is the final article in our three-part series looking at how the IRS’s guidance on the employee retention credit has changed over the past ten months.  This article focuses on how Notice 2021-20 builds on previous IRS guidance to narrow the scope of the credit and limit its availability.  Part I focuses on the statute and approach the IRS took in interpreting statute when the IRS issued frequently asked questions (“FAQs”) in April 2020. Part II focuses on the initial signs of trouble for employers that first appeared in the updated FAQs in June 2020.

The Notice is the proverbial effort to close the barn door after the horse is out of the barn–and in this case, clear across the pasture.  Although much of the guidance in the Notice reflects the (“FAQs”) that were posted to the IRS website beginning last April and that have been revised multiple times since, the Notice continues the trend that began last June of narrowing the availability and the amount of the employee retention credit—and in some instances, narrowing it in a way not contemplated by the permissive statutory language. (For our complete coverage of the employee retention credit and IRS guidance, click here.)
Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part III—The IRS Seeks to Close the Barn Door

On March 10, 2021, the House passed the fifth major COVID-relief legislation, the American Rescue Plan Act (the “Act”), which it originally passed last week before its amendment and passage by the Senate on March 6.  President Biden is expected to sign the Act on Friday, March 12, 2021.

The Act adopts a new payroll tax credit that is similar to the employee retention credit, which was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and amended by the Consolidated Appropriations Act, 2021 (the “CAA”).  The new credit will be in effect from July 1, 2021, through December 31, 2021.  In addition, the Act significantly increases the exclusion for employer-provided dependent care assistance for 2021, and makes prospective changes to extend the availability of paid leave credits similar to those originally adopted as part of the Families First Coronavirus Response Act (the “FFCRA”) and that are set to expire on March 31.  Finally, the Act will extend the deduction limitation under section 162(m) to additional employees.
Continue Reading American Rescue Plan Act Goes to Biden for Signature: Includes Changes to Employee Retention Tax Credit, Employer-Provided Dependent Care, Paid Leave Credits, and Deduction Limitations for Executive Compensation

Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”), providing guidance on

Recently released IRS Notice 2021-20 (the “Notice”) provides guidance on the interaction between the Paycheck Protection Program (“PPP”) and the employee retention credit.  Unfortunately, the Notice may limit the ability of many PPP borrowers to claim an employee retention credit that employers may have believed they would be entitled to claim.
Continue Reading Notice 2021-20 Limits Employee Retention Credit For Many PPP Borrowers

Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”).  This is the first of three articles looking at the evolution of IRS guidance on the employee retention credit.  This article focuses on Congress’s intention in enacting the employee retention credit and the guidance the IRS provided in the frequently asked questions (“FAQs”) it issued in April 2020.  The second article focuses on the first signs of trouble for employers that appeared when the IRS updated the FAQs in June 2020.  The final article focuses on how Notice 2021-20 builds on those FAQs to narrow the scope of the credit and limit its availability.
Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part I—Broad and Pragmatic Interpretations in the Pandemic’s Early Days

Recently released IRS Notice 2021-11, implements the extension of the period for collecting from employees and depositing employee Social Security tax that was deferred in the last four months of 2020.  IRS Notice 2020-65 (see earlier coverage) had specified that the employer “must withhold and pay the total [deferred 2020 taxes] . .

On January 4, 2021, the Internal Revenue Service issued Notice 2021-7 pertaining to the valuation of the personal use of employer-provided vehicles.  The Notice permits employers who rely on the special valuation rule of Treasury Regulation § 1.61-21(d), known as the Automobile Lease Valuation (ALV) method, to retroactively apply the vehicle cents-per-mile method of Treasury Regulation § 1.61-21(e) for purposes of valuing an employee’s personal use of a company vehicle in 2020.  Due to decreased business use of employer-provided vehicles during the COVID-19 pandemic, the IRS agreed with employers that the application of the ALV method may have resulted in higher income imputation than usual for many employees and that the use of the vehicle cents-per-mile method may provide a “more accurate reflection of the employee’s income . . [,]” particularly in 2020.  The ability to switch from the ALV method to the vehicle cents-per-mile method for 2020 applies only to a vehicle with a fair market value not exceeding $50,400 in 2020 and with respect to which the employer would reasonably have expected its regular use in the employer’s trade or business, were it not for the pandemic.

In addition, Notice 2021-7 provides employers, who switch from the ALV method to the vehicle cents-per-mile method for purposes of calculating personal use of the vehicle in 2020, with the option of continuing to apply the vehicle cents-per-mile method in 2021.  If the employer decides to continue using the vehicle cents-per-mile method in 2021, that method must be used by the employer and employee for all subsequent years, except to the extent the commuting valuation rule applies.  This decision will require employers to carefully evaluate whether the vehicle will continue to meet all of the requirements of Treasury Regulation § 1.61-21(e), other than the consistency requirement, and whether the value of the employee’s personal use of the vehicle will actually be calculated more favorably under the vehicle cents-per-mile method as compared to the ALV method, once the pandemic recedes in 2021 and vehicle use increases.
Continue Reading Notice 2021-7 Provides Employers Relief and Potential Opportunities on Valuation of Employer-Provided Vehicles in Light of COVID-19 Pandemic

After months of gridlock, the House and Senate, on December 21, both passed another round of COVID relief legislation (H.R. 133).  The 5,593-page bill, which gained momentum following the introduction of bipartisan compromise legislation, provides an enhanced employee retention credit (“ERC”), which is easier for employers to qualify during the first six months of 2021, as compared to the ERC enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

The bill also includes extensions to a number of workforce-related tax credits, including the work opportunity tax credit (“WOTC”), the paid family and medical leave tax credit included in the Tax Cuts and Jobs Act as a two-year pilot program, and the paid leave credits enacted as part of the Families First Coronavirus Response Act (“FFCRA”).  The bill would also extend the period during which employers may make student loan payments or reimbursements under an Internal Revenue Code Section 127 educational assistance plan, permit employers to provide additional flexibility under flexible spending accounts, and provide employers with a longer period in which to collect employee Social Security tax which was deferred during 2020 under IRS Notice 2020-65.

The bill would also add an employer income tax credit for qualified wages paid to employees in qualified disaster areas in 2020 for disasters other than COVID-19.  Finally, the bill addresses the deductibility of expenses paid with forgiven PPP loans.
Continue Reading Fourth (and Final?) COVID Relief Measure Clears House and Senate

For employers who decided to defer the employee share of Social Security taxes on wages paid from September 1 to December 31, 2020, pursuant to President Trump’s August 8 presidential memorandum, the employer’s obligation to collect those deferred amounts from employees’ paychecks is fast approaching.  Included among our previous posts discussing the deferral, which was voluntary, is a discussion of IRS Notice 2020-65.  The notice specifies that the employer “must withhold and pay the total [deferred 2020 taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021” and further warns that “if necessary, the [employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee.”  (See earlier coverage.)
Continue Reading Unpleasant Surprise May Await Employers That Deferred Employee Social Security Tax