The IRS has provided a safe harbor for employers claiming the Employee Retention Credit (ERC). This safe harbor allows employers to exclude certain iamounts from their gross receipts when determining their eligibility for the ERC.
Employee retention credit. Act Sec. 2301(a) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; PL 116-136) created the Employee Retention Credit (“ERC”), a refundable payroll tax credit. For 2020, the ERC can be claimed by eligible employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts (“eligible employers”).
Although originally the ERC was not available to employers receiving a Payroll Protection Program (“PPP”) loan, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA; PL 116-260) amended the ERC to allow eligible employers to claim the ERC even if the employer obtained a PPP loan. The TCDTRA also extended the availability of the credit into 2021. (TCDTRA Sec. 207)
Employers claim the ERC on their employment tax return, generally Form 941, Employers Quarterly Federal Tax Return, or adjusted employment tax return, generally Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Safe harbor for employers claiming the ERC. Rev Proc 2021-33, allows employers to exclude the following amounts from gross receipts:
- The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
- Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
- Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.The revenue procedure points out that, absent the safe harbor, these amounts would be included in gross revenue.
An employer electing this safe harbor:
- may exclude the above amounts from gross receipts only to determine whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return
- must exclude the above amounts from their gross receipts for each calendar quarter in which gross receipts are relevant to determining their eligibility to claim the ERC.
- must also apply the safe harbor to all employers treated as a single employer under the aggregation rules.
This safe harbor does not permit the employer to exclude the above items from gross receipts for any other federal tax purpose.