March 4, 2021 – On March 1, 2021, the IRS published Notice 2021-20, a 102 page document updating previous FAQ guidance for the CARES Act employee retention tax credit. The new guidance reflects changes to the program passed last December as part of the Consolidated Appropriations Act of 2021. The Notice only relates to the credit as it applies to 2020, and indicates that additional guidance is forthcoming regarding changes to the program that apply only in 2021.
Perhaps the most significant retroactive change made to the ERC by the legislation last December was a change in the rule that previously blocked businesses that had taken a payroll protection plan (PPP) loan from also participating in the ERC. PPP recipients may now evaluate whether they are also eligible employers for the credit and if they have qualified wages back to March 13, 2020. Given the nature of the retroactive change, there has naturally been a lot of confusion regarding the interaction of the two programs. The Notice includes several pages of examples for dealing with scenarios in which businesses may have already applied for PPP loan forgiveness without accounting for the implications for the ERC.
One of the most pressing questions was posed by U.S. Senators Maggie Hassan (D-NH) and Richard Burr (R-NC): “Since small employers who participated in PPP in 2020 were not eligible to claim the ERTC, the bipartisan year-end package also allowed these employers to retroactively claim the ERTC for wages paid in 2020. However, many employers who filed PPP forgiveness applications in 2020 reported wages over and above the wages necessary to receive maximum PPP loan forgiveness. Although employers did not receive PPP forgiveness covering these wages, the wages were reported on PPP forgiveness applications. As result, employers now require guidance clarifying that ‘double dipping’ rules do not prevent them from retroactively claiming the ERTC for 2020 wages that, though reported on PPP forgiveness applications, were not covered by PPP forgiveness.”
Notice 2021-20 provides favorable guidance allowing flexibility for those who reported more wages than necessary within their loan forgiveness applications.