IRS Notice 2021-23: Yet More Guidance for the Employee Retention Credit

IRS Notice 2021-23 (“the new Notice”), issued on April 2, 2020, is the latest guidance provided for the Employee Retention Credit (“ERC”). This is the second of published guidance from the IRS on the ERC (third if you count the initial IRS website FAQs) and yet more guidance is expected. So why is the IRS issuing a continuing succession of guidance on the ERC? The answer is that they’re keeping up with the succession of changes and extensions of the ERC made by Congress over the past twelve months. Congress first introduced the ERC with the CARES Act, which was passed on March 27, 2020. The ERC was initially only available for wages paid between March 12, 2020 and January 1, 2021. Then the Consolidated Appropriations Act (“CAA”) was passed on December 27, 2020, which extended the ERC to wages paid the first six months of 2021. Finally, the American Rescue Plan of 2021, passed on March 11, 2021, extended the ERC to wages paid during the last six months of 2021.

IRS Notice 2021-23 builds upon the guidance provided by the last published ERC guidance, IRS Notice 2021-20. The new Notice makes reference to the relevant sections of the previous notice and indicates when the previous guidance changes for the first two quarters of 2021. The Service also promises that additional guidance to cover the last six months of 2021 will be forthcoming.

The following is a summary of the guidance provided by the new Notice.

• Provides definitions for certain colleges, universities, and hospitals to qualify for the ERC even though they are governmental agencies.
• Provides guidance on how to calculate the gross receipts test in the first two quarters of 2021 including clarification for companies that were not in existence in 2019.
• Confirms that wages paid to employees who qualified for the work opportunity credit can also be used for the ERC in the first two quarters of 2021 (a modification to the rules made by the CCA).
• Reminds all eligible employers that they may access the ERC for the first two quarters of 2021 before filing their employment tax returns for those quarters by reducing their payroll tax deposits.
• Provides guidance for “2021 small eligible employers” on how to receive an advance payment of the ERC before their employment tax returns are filed.

With this new Notice, taxpayers are armed with additional information to claim the ERC for wages paid through July 1, 2021.

*This is part of an ongoing series on the employee retention credit. Please also see:

• How To Claim the Employee Retention Credit
• Interaction Between Paycheck Protection Program Loans (PPP) and Employee Retention Credits (ERC)
• IRS Notice 2021-20 Offers ERC Guidance