IRS issued guidance for employers claiming the employee retention credit under the Coronavirus Aid, Relief, and Economic Security Act modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
Notice 2021-23 PDF explains the changes for the first and second calendar quarters of 2021, including:
- the increase in the maximum credit amount
- the expansion of the category of employers that may be eligible to claim the credit
- modifications to the gross receipts test
- revisions to the definition of qualified wages
- new restrictions on the ability of eligible employers to request an advance payment of the credit
Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021.
Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. The maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 for the first two calendar quarters of 2021, according to a news release.
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.
Some limits and eligibility requirements apply. In 2021, advances are not available for large employers. Instructions on how to calculate and claim the employee retention credit for the first two calendar quarters of 2021 are available in Notice 2021-23.
Under the American Rescue Plan Act of 2021, the employee retention credit is available to eligible employers for wages paid during the third and fourth quarters of 2021. The Department of the Treasury and the IRS will provide further guidance on this later, the news release added.
More coronavirus relief information for businesses is available on IRS.gov.
More Tax Tips
The IRS reminds taxpayers they may have money waiting for them. An estimated 1.3 million taxpayers didn’t file a 2017 Form 1040 federal income tax return and are due to a refund.
Here are some things taxpayers should know about these unclaimed refunds:
- To collect the money, taxpayers must file their 2017 tax return with the IRS no later than this year’s tax deadline, Monday, May 17.
- When a taxpayer who is getting a refund does not file a return, the law gives them three years to claim that tax refund. If the taxpayer does not file a tax return within three years, the money goes back to the U.S. Treasury. For 2017 tax returns, the three-year window closes May 17, 2021.
- The law requires taxpayers to properly address and mail the tax return to the IRS. It must be postmarked by the May deadline.
- The IRS may hold the 2017 refunds of taxpayers who have not filed tax returns for 2018 and 2019.
- The unclaimed money will be applied to any amounts still owed to the IRS or a state tax agency. The money may also be used to offset unpaid child support or past due federal debts, such as student loans.
- By failing to file a tax return, people stand to lose more than just their tax refund. Many low-and moderate-income workers may be eligible for the earned income tax credit. For 2017, the credit was worth as much as $6,318. The EITC helps individuals and families whose incomes are below certain thresholds. The 2017 thresholds were:
- $48,340 for those with three or more qualifying children; $53,930 if married filing jointly
- $45,007 for people with two qualifying children; $50,597 if married filing jointly
- $39,617 for those with one qualifying child; $45,207 if married filing jointly
- $15,010 for people without qualifying children; $20,600 if married filing jointly
- Current and prior-year tax forms are available on the Forms, Instructions, and Publications page of IRS.gov or by calling toll-free 800-TAX-FORM (800-829-3676).
- Taxpayers who are missing forms W-2, 1098, 1099, or 5498 for the years 2017, 2018, or 2019 should request copies from their employer, bank, or another payer. Taxpayers who are unable to get missing forms can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. Taxpayers can use the information on the transcript to file their tax returns.