The IRS recently issued new guidance for employers claiming the Employee Retention Credit that falls under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) modified by the Relief Act.

This notice explains the changes to the Employee Retention Credit for the first two quarters of 2021, including:

  • an increase in the maximum credit amount,
  • expansion of the category of employers that may be eligible,
  • modifications to the gross receipts test,
  • revisions to the definition of qualified wages, and
  • new restrictions on the ability of eligible employers to request an advance payment of the credit.

The changes under the Relief Act mean that eligible employers can claim a refundable tax credit against the employer’s share of Social Security tax. The credit is equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. 

The limit on qualified wages is $10,000 per employee per calendar quarter in 2021. Therefore, the maximum employee retention credit allowed is $7,000 per employee per quarter, totaling $14,000 for the first two quarters of 2021.

To access the Employee Retention Credit for the 1st and 2nd calendar quarters of 2021, employers may reduce employment tax deposits prior to filing their employment tax returns.

The Employee Retention Credit will be available to eligible employers for wages paid during the third and fourth quarters of 2021 under the American Rescue Plan Act of 2021. Additional guidance will be provided by The Department of the Treasury and the IRS.

Get additional coronavirus relief information for businesses.