The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as part of the CAA, provided that loan forgiveness related to PPP Loans is not included in the gross income of an eligible recipient or eligible entity. Revenue Procedure 2021-33 refers to these two grant categories collectively as "ERC-Coordinated Grants." Section 3134(h)(1)(B)(C) allows an employer that has received an ERC-Coordinated Grant to claim the ERC available to it for the calendar quarter as long as qualified wages are not counted for both the ERC and payroll costs in connection with the grant.Įxclusion from gross income. The ARPA provided similar "restaurant revitalization grants" to qualifying restaurants and food vendors. The Economic Aid Act authorized the Small Business Administration to make "shuttered venue operator grants" to eligible venues that had been significantly affected by the COVID-19 pandemic, including performing arts and museum operators and promoters to cover payroll costs and other expenses. The Economic Aid Act extended the same forgiveness eligibility for PPP Second Draw Loans.Īlthough an employer that has received a PPP Loan may claim the ERC for the calendar quarter, the employer may not count qualified wages for both the ERC and as a payroll cost for the covered period.Ĭertain grants' interaction with the ERC. (3) "PPP Second Draw Loans" are additional loans authorized to be made to certain "eligible entities." Under the CARES Act, an eligible recipient of a PPP First Draw Loan or a Section 1109 Loan is eligible to have all or part of the loan's principal forgiven if certain conditions are met. (2) "Section 1109 Loans" are loans that certain lenders could make because section 1109 of the CARES Act allowed them to do so. For purposes of Revenue Procedure 2021-33, PPP loans fall into three categories, which the guidance refers to collectively as "PPP Loans." (1) "PPP First Draw Loans" were established under the CARES Act and amended by the Paycheck Protection Program Flexibility Act of 2020 and the Economic Aid Act to allow Small Business Act loans to be made to eligible recipients. of Notice 2021-23 and section III.D of Notice 2021-49. Different methods for determining the requisite percentage decline apply for different calendar quarters the specific rules are found in section III.E. To qualify, the employer must experience either (a) a full or partial suspension due to certain COVID-19-related government orders, or (b) a specified percentage decline in gross receipts for the calendar quarter when compared to the same quarter in 2019 (known as the "gross receipts test"). Notice 2021-49 (Tax Alert 2021-1489), issued in early August, explains how the earlier notices apply to ERCs as modified and extended to the end of 2021 by the ARPA.Įligible employers. The ERC is available solely to eligible employers (IRC Section 3134(c)(2)) for applicable calendar quarters in 20. Notices 2021-20 (Tax Alert 2021-0513) and 2021-23 (Tax Alert 2021-0724), issued in Spring 2021, provide guidance on who was eligible for the ERC and how to claim the credit. The CAA later extended the availability of the ERC for qualified wages paid after Decemand before July 1, 2021, and the ARPA extended the period again to apply for wages paid before January 1, 2022. Originally, the CARES Act allowed eligible employers, including tax-exempt organizations, to claim ERCs against applicable employment taxes attributable to qualified wages paid after Maand before January 1, 2021. The American Rescue Plan Act of 2021 (ARPA) added Section 3134 to the Internal Revenue Code (IRC), codifying and extending the ERC as created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and later enhanced and extended by the Consolidated Appropriations Act, 2021 (CAA). The safe harbor applies for determining an employer's eligibility to claim the ERC for wages paid after March 12, 2020, and before January 1, 2022, the full period for which the ERC is available. The excludable items are: (1) the forgiven portion of a Paycheck Protection Program (PPP) loan (2) a shuttered venue operators grant and (3) a restaurant revitalization grant. Safe harbor will let employers exclude from income forgiven PPP loans and certain grants when determining ERC eligibilityĪ new IRS safe harbor ( Revenue Procedure 2021-33) will allow taxpayers to exclude certain items from gross receipts under IRC Sections 448(c) and 6033, solely for determining eligibility for the employee retention credit (ERC).
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