Guidance on Claiming the Employee Retention Credit for the First and Second Quarters

The IRS recently released Notice 2021-23, providing guidance on claiming the employee retention credit. The notice expands on information provided in Notice 2021-20, 2021-11 IRB 922 in light of amendments made to the Coronavirus Aid, Relief and Economic Security (CARES) Act by the Taxpayer Certainty and Disaster Relief Act of 2020.

Changes for first and second quarters. The notice details the changes for the first and second quarters of 2021. This includes:

  • The increase in the maximum credit amount from $5,000 per calendar quarter (for a total of $10,000) to $7,000 per calendar quarter (for a total of $14,000;
  • Expansion of definition of eligible employer, for example now including college or university, and businesses that have the principal purpose or function of providing medical or hospital care;
  • Changes to the definition of “qualified wages.” Certain exclusions from “employment,” related to certain services performed for governmental or educational entities, are disregarded for purposes of the employee retention credit for the first and second calendar quarters of 2021.

Additionally, employers can get the employee retention credit for the first two calendar quarters of 2021 before filing their employment tax returns by reducing employment tax deposits. Small employers may request advance payment of the credit on Form 7200, Advance of Employer Credits Due to COVID-19 after reducing deposits.

Under the American Rescue Plan Act of 2021 (ARPA), the employee retention credit is also available to eligible employers for wages paid during the third and fourth quarters of 2021. Guidance is expected to be provided at a future date.