The IRS has issued new guidance for employers claiming the Employee Retention Tax Credit for the first two quarters of 2021.

The tax credit was granted under the CARES Act and later modified in the second federal coronavirus relief act that lawmakers approved in December last year.

The IRS previously issued guidance for claiming the credit for 2020.

The new guidance for the first two quarters of 2021 explains changes to the credit that include:

  • 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

Qualified Wages

Due to changes in the federal law, 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 Dec. 31, 2020 through June 30, 2021.

Qualified wages are limited to $10,000 per employee per calendar quarter in 2021.

That means the maximum 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.

Employers can access the credit for the first and second calendar quarters of 202 before filing their employment tax returns by reducing employment tax deposits.

Advance Payment

Small employers—those 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 after reducing deposits.

In 2021, advances are not available for larger employers. Further details calculating and claiming the employee retention credit for the first two calendar quarters of 2021 can be found in the new guidance.

Under the federal American Rescue Plan Act, enacted March 11, 2021, the 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 the credit available under ARPA.

Here is additional coronavirus tax relief information for businesses.