IRS on Employee Retention Credit Under Modified Legislation

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The Internal Revenue Service has issued guidance for employers claiming the Employee Retention Credit under The CARES Act, which was then modified by The Relief Act.

Eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they pay to employees after Dec. 31, 2020 through June 30, 2021. Notice 2021-23 explains the changes to the Employee Retention Credit for the first two calendar quarters of 2021.

Also, employers can access the Employee Retention Credit for the first and second calendar quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers (with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200 - Advance of Employer Credits Due to Covid-19, after reducing deposits. In 2021, advances are not available for employers larger than this. Further details on how to calculate and claim the Employee Retention Credit for the first two calendar quarters of 2021 can also be found 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 U.S. Treasury Department and the IRS will provide further guidance.

Credit unions are advised to consult with their tax advisor. Further clarification can help determine if a limited set of circumstances will allow the credit union to claim the Employee Retention Credit.

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