Employee Retention Credit

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

On November 16, the IRS added two new FAQs to its website that address an issue that has been concerning employers since the CARES Act was adopted.  For purposes of the employee retention credit (“ERC”), Section 2301(d) of the CARES Act includes an aggregation rule that treats all employers required to be aggregated under section 52 of the Code or certain provisions of section 414 of the Code to be treated as a single employer.  (See earlier coverage of the aggregation rule.)  Because the CARES Act also prohibits any employer who receives a Paycheck Protection Program (“PPP”) loan (regardless of whether the loan is forgiven) from claiming the ERC.

Based on the statutory language, practitioners have been concerned that if an employer acquires another employer that previously received a PPP loan, the acquirer’s entire aggregated group may no longer be eligible to claim the ERC.  More troubling, Section 2301(l)(3) of the CARES Act instructs the Treasury to promulgate regulations for the recapture of the ERC claimed by an employer that subsequently obtains a PPP loan.  This caused concerned that the acquirer could not only lose the ability to claim the ERC prospectively after the acquisition, but could be required to repay any amount or ERC previously claimed.  Although the new FAQs are not binding on the IRS, they prove welcome news.
Continue Reading IRS FAQs Provide Welcome Guidance on Employee Retention Credit and PPP Loans in M&A Transactions

The IRS recently announced that it erroneously sent failure-to-deposit (“FTD”) penalty notices to certain employers that reduced their employment tax deposits on Form 941 (Employer’s Quarterly Federal Tax Return) in anticipation of claiming sick and family leave credits under the Families First Coronavirus Response Act (“FFCRA”) or the employee retention credit (“ERC”) under the Coronavirus, Aid, Relief and Economic Securities (“CARES”) Act.
Continue Reading IRS Warns Employers Claiming New Tax Credits of Erroneous Penalty Notices

On July 27, Senate Republicans released a series of COVID-19 relief bills, including the “American Workers, Families, and Employers Assistance Act” (the “Bill”).  The Bill is a successor to several provisions in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, passed in March of this year, which attempted to blunt the early effects of the COVID-19 pandemic.

Section 213 of the Bill would create a new “safe and healthy workplace tax credit,” which would provide a refundable payroll tax credit equal to 50% of an employer’s “qualified employee protection expenses,” such as COVID-19 tests, protective personal equipment, and cleaning supplies.  The new tax credit would also cover “qualified workplace reconfiguration expenses,” including workspace modifications to protect employees and customers from the spread of COVID-19, and “qualified workplace technology expenses,” including technologies designed to reduce contact between employees and customers that were acquired by the employer on or after March 13, 2020, and were not acquired pursuant to a plan in existence before that date.Continue Reading Senate Republican Proposal Includes Payroll Tax Credit to Defray Employer Expenses for COVID-19 Prevention

As we noted in an earlier post, on July 27, Senate Republicans introduced new legislation in response to the continued COVID-19 pandemic.  One of the introduced bills, titled the American Workers, Families, and Employers Assistance Act (the “Bill”), would enhance the existing employee retention credit.
Continue Reading Senate Republican Proposal Would Enhance Employee Retention Credit

On July 27, Senate Republicans introduced a series of bills intended as their opening salvo in what appears likely to be contentious negotiations among Senate Republicans, the White House, and House and Senate Democrats over the next legislative response to the COVID-19 pandemic.  Along with another round of direct stimulus payments to individual taxpayers, extended

On Friday, June 19, the IRS updated several FAQs on its website related to the Employee Retention Credit adopted as part of the Coronavirus Relief, Aid, and Economic Security (“CARES”) Act.  The updated FAQs provide additional insight into the IRS’s current thinking regarding employer eligibility for and determination of the credit.  Unfortunately, the updated FAQs still leave significant uncertainty regarding the eligibility of some employers, many of whom will be making a determination of their eligibility before filing their Forms 941, Employer’s Quarterly Federal Tax Return, for the second quarter in July.
Continue Reading IRS Updates FAQs on Employee Retention Credit Enacted as Part of CARES Act

On May 7, the IRS updated its frequently asked questions to reverse its earlier determination that health plan expenses paid or incurred by an employer to provide health benefits to furloughed employees who were not paid other wages were not qualified health plan expenses for which an employer could claim the employee retention credit.  The

On May 4, the IRS revised its newly released frequently asked questions (“FAQs”) to clarify the interaction of the Paycheck Protection Program (“PPP”) with the employee retention credit.  FAQ 79 now indicates that an employer that repays its PPP loan by May 7, 2020, in accordance with rules issued by the Small Business Administration (“SBA”),

On April 29, the IRS released extensive new guidance in the form of frequently asked questions (“FAQs”) on the IRS website addressing various aspects of the employee retention credit.  Section 2301(l) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) instructs Treasury to issue regulations concerning the application of the credit to employers that use third-party payers.  This is the fifth and final article in our series addressing various aspects of the FAQs.  This article addresses issues related to the use of a third-party payer, such as a reporting agent, payroll processor, section 3504 agent, or professional employer organization (“PEO”).
Continue Reading IRS FAQs Provide More Guidance on Employee Retention Credit for Employers Using Third Party Payers