The IRS issued new guidance for employers claiming the employee retention tax credit for 2020 under the federal Coronavirus Aid, Relief, and Economic Recovery Act.

The guidance recognizes modifications for calendar quarters in 2020 made to the CARES Act by the second coronavirus relief package that Congress approved in December.

It also clarifies and describes retroactive changes under the new law applicable to 2020, primarily related to expanded eligibility for the tax credit.

Employers who paid qualified wages after March 12, 2020 and before Jan. 1, 2021 and who experienced a full or partial suspension of their operations or a significant decline in gross receipts can claim the employee tax retention credit for 2020.

The credit is equal to 50% of qualified wages paid, including qualified health plan expenses, for up to $10,000 per employee in 2020

The maximum credit available for each employee is $5,000 in 2020.

PPP Implications

The IRS also noted that eligible employers who received a PPP loan are permitted to claim the employee retention credit, although the same wages cannot be counted for seeking loan forgiveness and calculating the credit.

The new guidance explains how employers who received a PPP loan can claim the employee retention credit for 2020.

The guidance, similar to information in the agency’s employee retention credit FAQ, also answers these questions:

  • Who are eligible employers?
  • What constitutes a full or partial suspension of trade or business operations?
  • What is a significant decline in gross receipts?
  • How much is the maximum amount of an eligible employer’s retention credit?
  • What are qualified wages?
  • How does an eligible employer claim the employee retention credit?
  • How does an eligible employer substantiate the claim for the credit?

 The new guidance addresses only the rules applicable to 2020. It does not apply to the employee retention credit for the first two calendar quarters of 2021.

The agency said it plans to provide additional guidance soon on the changes for 2021.