IRS Notice 2021-20 updates the IRS FAQ for changes made to the Employee Retention Credit (known as the ERTC for short) by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act) enacted in December 2020 and confirms that employers can utilize both the tax credit and the Paycheck Protection Program (PPP). Prior to that, eligible institutions had to choose between PPP loans and the tax credit. The guidance is similar to the FAQ explaining the ERTC but includes additional clarifications and retroactive changes related to expanded eligibility for the credit.
While the Relief Act also expanded eligibility for the credit to public institutions and extended the credit for all employers to include the first two quarters in 2021, this notice only addresses the rules applicable to 2020 and therefore only applies to private colleges and universities.
Employers that received a PPP loan can also claim the ERTC as long as the same wages are not counted both for seeking forgiveness of the PPP loan and calculating the credit. The guidance provides details about how institutions with PPP loans can claim the ERTC for 2020.
For 2020, the ERTC may be claimed by private institutions who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of operations or a significant decline in gross receipts. The credit is equal to 50 percent of qualified wages paid (including qualified health plan expenses) for up to $10,000 per employee in 2020. The maximum credit per employee is $5,000 in 2020.
The notice explains:
- What constitutes full or partial suspension of operations
- What is a significant decline in gross receipts
- What are qualified wages
- How employers can claim the credit
- How employers can substantiate the credit
Find other information from NACUBO about COVID-19 employer and tax relief here.