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IRS Issues Employee Retention Credit Guidance in Response to Passage of December 2020 COVID-19 Relief Legislation

The Internal Revenue Service (IRS) issued new guidance addressing changes to the Employee Retention Credit for the first two calendar quarters of 2021. As you may recall, the Employee Retention Credit was created in the CARES Act to help businesses keep employees on their payroll during the COVID-19 pandemic. The credit was extended through June 30, 2021, in the December 2020 COVID-19 response law.

Per this new guidance (Notice 2021-23), employers can claim a refundable tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they pay to employees after December 31, 2020 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. The maximum employee 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.

The IRS notes that it plans to issue additional guidance on the Employee Retention Credit in light of the passage of the American Rescue Plan Act (ARPA). Under ARPA, the credit is available to eligible employers for wages paid during the third and fourth quarters of 2021.

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