The IRS has issued updated guidance on several aspects of the employee retention credit. April Walker, CPA, CGMA, lead manager on the Tax Practice & Ethics team at the AICPA, touches on the highlights, including filing options for claiming the credit, an extension of penalty relief, and several key questions that have yet to be resolved.
What you’ll learn from this episode:
- What recent IRS notices have addressed regarding claiming the credit in 2021 and penalty relief.
- Two critical questions about the credit that have yet to be addressed by the IRS.
- One common mistake that a CPA firm leader says managers should avoid when delegating tasks.
- Updates on a bill’s passage in the House of Representatives and other news.
Play the episode below or read the edited transcript:
To comment on this episode or to suggest an idea for another episode, contact Neil Amato, a JofA senior editor, at Neil.Amato@aicpa-cima.com.
Neil Amato: Welcome back to the Journal of Accountancy podcast. I’m Neil Amato. I use the term “welcome back” because I’m welcoming back a repeat guest, the lead manager for the AICPA’s Tax Practice and Ethics team, CPA April Walker.
April, it’s been almost two months since we last spoke about the employee retention credit. As we close in on May, what’s new since then, since that discussion in early March?
April Walker: Yes, thanks, Neil, for having me back. In this time, the IRS has issued another notice, on April 2, and that is Notice 2021-23. And what that does is provides information on claiming credit for the first and second quarter in 2021. You’ll recall when we talked last time that the legislation passed at the end of 2020 both extended the employee retention credit and also modified it in several ways, most notably by increasing the credit amount from 50% to 70% of qualified wages, as well as increasing the maximum amount of the credit. It went from $5,000 in total for an employee to $7,000 per quarter for an employee. Also, there was a reduction in the decline in gross receipts test that was necessary from 50% to 20%.
So, that’s just a quick summary of the changes that happened with the employee retention credit for 2021. This notice provides information and clarification on some of those things. Another change of note for the credit is the ability to choose either the current quarter or the immediately preceding quarter when testing for that decline in gross receipts. To give you a quick example, to calculate the 2021 first quarter, you could qualify either by comparing receipts for 2021 first quarter to 2019 first quarter, you could qualify that way with the 20% reduction. Or you can qualify by comparing the fourth quarter of 2020 to the fourth quarter of 2019, so the previously preceding quarter. Just another way that Congress was hoping to expand this relief to businesses.
Amato: That’s a good summation. What are some yet-to-be-resolved topics that eligible organizations are most interested in regarding the ERC?
Walker: We’ve gotten two main, really big questions that we’re waiting on guidance for. The first one is whether wages that are paid to more than 50% owners and also their spouses, whether those employees’ wages are eligible for the credit. The statute is silent on the issue, and there is no clear consensus on this. There have been a lot of people who have discussed this and looked into this, but no consensus. So we really need guidance from the IRS to be able to know the definitive answer.
Another hot topic is whether PPP proceeds, when they’re received or when they’re forgiven, should be included when you’re doing that gross receipts calculation. So, for some businesses that might be really important in determining whether or not they qualify. Again, these have not been addressed, and we are hopeful they will be addressed soon.
Amato: Earlier, you mentioned Notice 2021-23. Now a question about Notice 2021-24. How does the penalty relief announced in that IRS notice affect employers who are claiming the ERC?
Walker: This notice provides penalty relief for businesses that are anticipating but might not have calculated their employee retention credit yet, because as we discussed, it is quite a complicated determination to determine whether a business qualifies or not. So it’s providing those businesses who — because quarterly reports are due April 30, so that’s coming up really soon. For businesses who are trying to decide whether they qualify or not, they might not be ready to make their deposit for these payroll taxes. So, it’s giving them penalty relief, a little bit of time to be able to determine whether they qualify. And it’s actually not just the ERC. It is for some of the other credits that are intended to provide relief for the pandemic.
Amato: So, I’ve read about filing options. Are there different ways eligible businesses can claim the credit?
Walker: Yes, that's right. For the normal way, the most common way a business is going to apply for this credit is through the quarterly filed returns, Form 941. So, those are filed every quarter, and you reduce the amount of payroll tax you deposit by the amount of the credit. That’s how most businesses will receive the benefit of the credit. For certain businesses in 2021, they are allowed to apply for an advance payment of the credit. So maybe the amount of the credit that you’re calculating is greater than the amount of payroll tax that you are getting ready to deposit, so that’s when you would have a possible opportunity to apply for an advance credit, and you would apply for that on Form 7200.
Amato: April, these are some good updates. Obviously, there’s still guidance people are waiting on for the third and fourth quarters of 2021. Thank you so much for the update.
Senior editor Courtney Vien has an interview with CPA firm leader Brannon Poe publishing soon on the podcast. They discuss a range of topics, including one skill that some of us are good at and some of us need to work on. That skill is delegation. Here’s Brannon Poe on one of the ways managers get delegation wrong.
Brannon Poe: When you delegate something, the person that’s getting the work, they need to own that project, and if you keep taking that ownership back, then they’re never going to take ownership of anything. It’s too high-risk for them. And they’re not going to put [in] their effort if you’re going to do it for them.
Amato: Again that was Brannon Poe, a CPA featured in an upcoming Journal of Accountancy podcast episode. Look for that episode to publish in early May on the Journal of Accountancy website and popular podcast platforms.
In other news, the U.S. Small Business Administration said in a news release on April 19 that it intended to reopen the portal for Shuttered Venue Operators Grant Program applications by the end of the week. The SBA said its technology team and vendors are focused on testing the portal, which was shut down because of technical issues only hours after it opened on April 8. Updates on the status of the portal can be followed on the SBA’s twitter account at twitter.com/sbagov.
Also, the SBA provided details of its Restaurant Revitalization Fund, including funding calculations. Eligible businesses can begin preparing applications, but the SBA is not yet ready to accept them. A date for when the application window officially opens is still to come.
The House of Representatives passed a bill that would prohibit federal prosecution for providing banking services to a legitimate cannabis business. The Safe Banking Act, which now heads to the Senate for a vote, also includes protections for ancillary services. Those ancillary services are expected to be interpreted to include CPA services.
And the IRS announced it would extend, for a large number of forms, the authorization to electronically sign until Dec. 31 of this year. The IRS also added new forms that can be e-signed. For more on these topics and other news, visit journalofaccountancy.com. Thank you for listening to the Journal of Accountancy podcast.