Bulletin No. 2021–11
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HIGHLIGHTS
OF THIS ISSUE
Bulletin No. 2021–11
March 15, 2021
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
EMPLOYMENT TAX
Notice 2021-20, page 922.
Notice 2021-20 provides guidance on the employee retention credit provided under Section 2301 of the Coronavirus
Aid, Relief, and Economic Security Act, as amended by section 206 of the Taxpayer Certainty and Disaster Tax Relief Act
of 2020 (Relief Act), for qualified wages paid after March 12,
2020, and before January 1, 2021. Notice 2021-20 largely
incorporates the concepts previously set forth in the Frequently Asked Questions (FAQs) posted on the IRS website.
Notice 2021-20 also contains guidance related to changes
made by the Relief Act not addressed in the FAQs, including
information for employers that received Paycheck Protection
Program (PPP) loans.
INCOME TAX
Notice 2021-18, page 911.
Notice 2021-18 provides for adjustments to the limitation on
housing expenses for purposes of section 911 of the Inter-
Finding Lists begin on page ii.
nal Revenue Code for the 2021 tax year. These adjustments
are made on the basis of geographic differences in housing
costs relative to housing costs in the United States. If the
limitation on housing expenses is higher for the 2021 tax
year than the adjusted limitations on housing expenses provided in Notice 2020-13, qualified taxpayers may apply the
adjusted limitations in this notice for the 2021 tax year to
their 2020 tax year.
Notice 2021-19, page 920.
Resident populations of the 50 states, the District of Columbia, Puerto Rico, and the insular areas for purposes of determining the 2021 calendar year (1) state housing credit
ceiling under section 42(h) of the Code, (2) private activity
bond volume cap under section 146, and (3) private activity
bond volume limit under section 142(k) are reproduced.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
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internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
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identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
March 15, 2021
Bulletin No. 2021–11
Part III
Determination of Housing
Cost Amounts Eligible for
Exclusion or Deduction for
2021
Notice 2021-18
SECTION 1. PURPOSE
This notice provides adjustments to the
limitation on housing expenses for purposes of section 911 of the Internal Revenue Code for specific locations for 2021.
These adjustments are based on geographic differences in housing costs relative to
housing costs in the United States.
SECTION 2. BACKGROUND
Section 911 allows a qualified individual to elect to exclude from gross income
the foreign earned income and to exclude
or deduct the housing cost amount of such
individual.
The term “housing cost amount” is
generally the total of the housing expenses
for the taxable year minus a base housing
Country
amount. See § 911(c)(1). For this purpose,
the base housing amount for the taxable
year is limited to an amount that is tied
to the maximum foreign earned income
exclusion amount, which is $108,700 for
2021. See § 911(c)(1)(B) and (d)(1). Specifically, the base housing amount is 16
percent of the maximum foreign earned
income exclusion amount (computed on
a daily basis), multiplied by the number
of days in the applicable period that fall
within the taxable year. Assuming that
the entire taxable year of a qualified individual is within the applicable period, the
base housing amount for 2021 is $17,392
($108,700 x .16).
Similarly, the housing expense amount
is also limited, based on a percentage of
the maximum foreign earned income exclusion amount. Specifically, the limit on
such housing expenses generally equals
30 percent of the maximum foreign
earned income exclusion amount (computed on a daily basis), multiplied by the
number of days in the applicable period for which the taxpayer is a qualified
individual. See § 911(c)(2)(A) and (d)
(1). Thus, under this general limitation,
a qualified individual whose entire tax-
Location
able year is within the applicable period
is limited to maximum housing expenses of $32,610 ($108,700 x .30) for 2021.
However, section 911(c)(2)(B) authorizes the Secretary to issue regulations or
other guidance to adjust the percentage
under section 911(c)(2)(A)(i) (which determines the limit on housing expenses)
based on geographic differences in housing costs relative to housing costs in the
United States. Pursuant to this authority,
the Department of the Treasury (Treasury
Department) and the Internal Revenue
Service (IRS) have published annual
notices concerning the limitation on the
section 911 housing cost amounts since
the 2006 taxable year.
For more background on the foreign
housing exclusion, see https://www.irs.
gov/individuals/international-taxpayers/
foreign-housing-exclusion-or-deduction.
SECTION 3. TABLE OF ADJUSTED
HOUSING LIMITATIONS FOR 2021
The following table provides adjusted
limitations on housing expenses (in lieu
of the otherwise applicable limitation of
$32,610) for 2021.
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Angola
Luanda
84,000
230.14
Argentina
Buenos Aires
56,500
154.79
Australia
Canberra
38,400
105.21
Australia
Perth
33,800
92.60
Australia
Sydney
74,000
202.74
Austria
Vienna
35,400
96.99
Bahamas, The
Nassau
49,700
136.16
Bahrain
Bahrain
48,300
132.33
Barbados
Barbados
37,700
103.29
Barbados
Bridgetown
37,700
103.29
Belgium
Brussels
44,500
121.92
Belgium
Gosselies
39,700
108.77
Belgium
Mons
39,700
108.77
Bulletin No. 2021–11
911
March 15, 2021
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Belgium
SHAPE/Chièvres
39,700
108.77
Bermuda
Bermuda
90,000
246.58
Brazil
Rio de Janeiro
35,100
96.16
Brazil
Sao Paulo
56,600
155.07
Canada
Calgary
39,700
108.77
Canada
Montreal
54,200
148.49
Canada
Ottawa
45,800
125.48
Canada
Quebec
35,700
97.81
Canada
Toronto
56,600
155.07
Canada
Vancouver
49,300
135.07
Canada
Victoria
40,800
111.78
Cayman Islands
Grand Cayman
48,000
131.51
Chile
Santiago
35,900
98.36
China
Beijing
74,400
203.84
China
Hong Kong
114,300
313.15
China
Shanghai
57,001
156.17
Colombia
Bogota
58,700
160.82
Colombia
All cities other than Bogota
49,400
135.34
Costa Rica
San Jose
37,800
103.56
Democratic Republic of the
Congo
Kinshasa
42,000
115.07
Denmark
Copenhagen
43,704
119.74
Dominican Republic
Santo Domingo
45,500
124.66
Ecuador
Quito
38,200
104.66
Estonia
Tallinn
46,600
127.67
France
Garches
76,300
209.04
France
Lyon
42,200
115.62
France
Marseille
41,200
112.88
France
Montpellier
34,000
93.15
France
Paris
76,300
209.04
France
Sevres
76,300
209.04
France
Suresnes
76,300
209.04
France
Versailles
76,300
209.04
Germany
Babenhausen
37,400
102.47
Germany
Baumholder
37,200
101.92
Germany
Berlin
45,700
125.21
Germany
Birkenfeld
37,200
101.92
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Bulletin No. 2021–11
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Germany
Boeblingen
44,400
121.64
Germany
Bonn
42,000
115.07
Germany
Cologne
56,200
153.97
Germany
Darmstadt
37,400
102.47
Germany
Frankfurt am Main
39,000
106.85
Germany
Garmisch-Partenkirchen
35,100
96.16
Germany
Gelnhausen
47,200
129.32
Germany
Giessen
36,000
98.63
Germany
Grafenwoehr
37,800
103.56
Germany
Hanau
47,200
129.32
Germany
Heidelberg
34,900
95.62
Germany
Idar-Oberstein
37,200
101.92
Germany
Ingolstadt
53,500
146.58
Germany
Kaiserslautern, Landkreis
46,400
127.12
Germany
Karlsruhe
36,100
98.90
Germany
Koblenz
36,800
100.82
Germany
Leimen
34,900
95.62
Germany
Ludwigsburg
44,400
121.64
Germany
Mainz
51,100
140.00
Germany
Mannheim
34,900
95.62
Germany
Munich
53,500
146.58
Germany
Nellingen
44,400
121.64
Germany
Neubruecke
37,200
101.92
Germany
Ober Ramstadt
37,400
102.47
Germany
Oberammergau
35,100
96.16
Germany
Pfullendorf
36,800
100.82
Germany
Pirmasens
46,400
127.12
Germany
Rheinau
34,900
95.62
Germany
Schwetzingen
34,900
95.62
Germany
Seckenheim
34,900
95.62
Germany
Sembach
46,400
127.12
Germany
Stuttgart
44,400
121.64
Germany
Vilseck
37,800
103.56
Germany
Wahn
42,000
115.07
Germany
Wiesbaden
51,100
140.00
Germany
Zweibrueken
46,400
127.12
Bulletin No. 2021–11
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March 15, 2021
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Germany
All cities other than Augsburg,
Babenhausen, Bad Aibling, Bad
Kreuznach, Bad Nauheim, Baumholder, Berchtesgaden, Berlin,
Birkenfeld, Boeblingen, Bonn,
Bremen, Bremerhaven, Butzbach,
Cologne, Darmstadt, Delmenhorst,
Duesseldorf, Erlangen, Flensburg,
Frankfurt am Main, Friedberg,
Fuerth, Garlstedt, Garmisch-Partenkirchen, Geilenkirchen, Gelnhausen, Germersheim, Giebelstadt,
Giessen, Grafenwoehr, Grefrath,
Greven, Gruenstadt, Hamburg,
Hanau, Handorf, Hannover,
Heidelberg, Heilbronn, Herongen, Idar-Oberstein, Ingolstadt,
Kaiserslautern, Landkreis, Kalkar,
Karlsruhe, Kerpen, Kitzingen, Koblenz, Leimen, Leipzig, Ludwigsburg, Mainz, Mannheim, Mayen,
Moenchen-Gladbach, Muenster,
Munich, Nellingen, Neubruecke,
Noervenich, Nuernberg, Ober
Ramstadt, Oberammergau, Osterholz-Scharmbeck, Pfullendorf,
Pirmasens, Rheinau, Rheinberg,
Schwabach, Schwetzingen, Seckenheim, Sembach, Stuttgart, Twisteden, Vilseck, Wahn, Wertheim,
Wiesbaden, Worms, Wuerzburg,
Zirndorf, and Zweibrueken
36,800
100.82
Ghana
Accra
36,000
98.63
Greece
Athens
37,400
102.47
Greece
Elefsis
37,400
102.47
Greece
Ellinikon
37,400
102.47
Greece
Mt. Parnis
37,400
102.47
Greece
Mt. Pateras
37,400
102.47
Greece
Nea Makri
37,400
102.47
Greece
Piraeus
37,400
102.47
Greece
Tanagra
37,400
102.47
Guatemala
Guatemala City
42,000
115.07
Guinea
Conakry
51,300
140.55
Guyana
Georgetown
35,000
95.89
Holy See, The
Holy See, The
50,800
139.18
India
Mumbai
67,920
186.08
India
New Delhi
56,124
153.76
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Bulletin No. 2021–11
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Indonesia
Jakarta
37,776
103.50
Ireland
Dublin
44,200
121.10
Ireland
Shannon Area
35,300
96.71
Israel
Beer Sheva
61,300
167.95
Israel
Jerusalem
49,000
134.25
Israel
Tel Aviv
50,800
139.18
Israel
West Bank
49,000
134.25
Italy
Aviano
40,500
110.96
Italy
Genoa
41,800
114.52
Italy
La Spezia
40,400
110.68
Italy
Milan
75,900
207.95
Italy
Naples
52,100
142.74
Italy
Parma
38,600
105.75
Italy
Rome
50,800
139.18
Italy
Turin
38,000
104.11
Italy
Vicenza
42,400
116.16
Jamaica
Kingston
41,200
112.88
Japan
Atsugi
43,200
118.36
Japan
Camp Zama
43,200
118.36
Japan
Chiba-Ken
43,200
118.36
Japan
Fussa
43,200
118.36
Japan
Gifu
74,300
203.56
Japan
Haneda
43,200
118.36
Japan
Iwakuni
35,100
96.16
Japan
Kanagawa-Ken
43,200
118.36
Japan
Komaki
74,300
203.56
Japan
Machidi-Shi
43,200
118.36
Japan
Misawa
34,500
94.52
Japan
Nagoya
74,300
203.56
Japan
Okinawa Prefecture
59,800
163.84
Japan
Osaka-Kobe
90,664
248.39
Japan
Sagamihara
43,200
118.36
Japan
Saitama-Ken
43,200
118.36
Japan
Sasebo
35,400
96.99
Japan
Tachikawa
43,200
118.36
Japan
Tokyo
99,700
273.15
Japan
Tokyo-to
43,200
118.36
Japan
Yokohama
53,100
145.48
Bulletin No. 2021–11
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March 15, 2021
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Japan
Yokosuka
56,900
155.89
Japan
Yokota
40,700
111.51
Kazakhstan
Almaty
48,000
131.51
Korea
Camp Colbern
54,200
148.49
Korea
Camp Market
59,000
161.64
Korea
Camp Mercer
54,200
148.49
Korea
K-16
59,000
161.64
Korea
Kimpo Airfield
59,000
161.64
Korea
Munsan
34,000
93.15
Korea
Osan AB
39,400
107.95
Korea
Pyongtaek
42,300
115.89
Korea
Seoul
59,000
161.64
Korea
Suwon
59,000
161.64
Korea
Taegu
36,000
98.63
Korea
Tongduchon
35,200
96.44
Korea
Uijongbu
32,800
89.86
Kuwait
Kuwait City
64,400
176.44
Kuwait
All cities other than Kuwait City
57,700
158.08
Luxembourg
Luxembourg
41,700
114.25
Macedonia
Skopje
35,400
96.99
Malaysia
Kuala Lumpur
46,200
126.58
Malaysia
All cities other than Kuala Lumpur
33,700
92.33
Malta
Malta
55,100
150.96
Mexico
Merida
37,900
103.84
Mexico
Mexico City
47,900
131.23
Mexico
Monterrey
33,200
90.96
Mexico
All cities other than Ciudad Juarez,
Cuernavaca, Guadalajara, Hermosillo, Matamoros, Mazatlan,
Merida, Metapa, Mexico City,
Monterrey, Nogales, Nuevo Laredo, Reynosa, Tapachula, Tijuana,
Tuxtla Gutierrez, and Veracruz
39,400
107.95
Mozambique
Maputo
39,500
108.22
Netherlands
Amsterdam
52,900
144.93
Netherlands
Aruba
39,100
107.12
Netherlands
Brunssum
38,000
104.11
Netherlands
Eygelshoven
38,000
104.11
Netherlands
Hague, The
60,600
166.03
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Bulletin No. 2021–11
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Netherlands
Heerlen
38,000
104.11
Netherlands
Hoensbroek
38,000
104.11
Netherlands
Hulsberg
38,000
104.11
Netherlands
Kerkrade
38,000
104.11
Netherlands
Landgraaf
38,000
104.11
Netherlands
Maastricht
38,000
104.11
Netherlands
Papendrecht
36,500
100.00
Netherlands
Rotterdam
36,500
100.00
Netherlands
Schaesburg
38,000
104.11
Netherlands
Schinnen
38,000
104.11
Netherlands
Schiphol
52,900
144.93
Netherlands
Ypenburg
60,600
166.03
Netherlands
All cities other than Amsterdam,
Aruba, Brunssum, Coevorden,
Eygelshoven, The Hague, Heerlen,
Hoensbroek, Hulsberg, Kerkrade,
Landgraaf, Maastricht, Margraten,
Papendrecht, Rotterdam, Schaesburg, Schinnen, Schiphol, and
Ypenburg.
36,000
98.63
Netherlands Antilles
Curacao
45,800
125.48
New Zealand
Auckland
35,700
97.81
New Zealand
Wellington
33,800
92.60
Nigeria
Abuja
36,000
98.63
Norway
Oslo
34,100
93.42
Oman
Muscat
41,300
113.15
Panama
Panama City
39,500
108.22
Peru
Lima
39,100
107.12
Philippines
Cavite
41,400
113.42
Philippines
Manila
41,400
113.42
Poland
Warsaw
40,900
112.05
Portugal
Alverca
46,500
127.40
Portugal
Lisbon
46,500
127.40
Qatar
Doha
45,888
125.72
Romania
Bucharest
41,200
112.88
Russia
Moscow
108,000
295.89
Russia
Saint Petersburg
60,000
164.38
Russia
Sakhalin Island
77,500
212.33
Russia
Vladivostok
77,500
212.33
Russia
Yekaterinburg
47,400
129.86
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March 15, 2021
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
Saudi Arabia
Riyadh
40,000
109.59
Singapore
Singapore
84,100
230.41
Slovenia
Ljubljana
53,300
146.03
South Africa
Pretoria
39,300
107.67
Spain
Barcelona
40,600
111.23
Spain
Madrid
62,000
169.86
Spain
Rota
37,800
103.56
Spain
Valencia
35,600
97.53
Suriname
Paramaribo
33,000
90.41
Switzerland
Bern
72,900
199.73
Switzerland
Geneva
103,800
284.38
Switzerland
Zurich
39,219
107.45
Switzerland
All cities other than Bern, Geneva
and Zurich
32,900
90.14
Taiwan
Taipei
46,188
126.54
Tanzania
Dar Es Salaam
44,000
120.55
Thailand
Bangkok
59,000
161.64
Trinidad and Tobago
Port of Spain
54,500
149.32
Ukraine
Kiev
72,000
197.26
United Arab Emirates
Abu Dhabi
49,687
136.13
United Arab Emirates
Dubai
57,174
156.64
United Kingdom
Basingstoke
41,099
112.60
United Kingdom
Bath
41,000
112.33
United Kingdom
Bracknell
62,100
170.14
United Kingdom
Bristol
33,200
90.96
United Kingdom
Brookwood
37,300
102.19
United Kingdom
Cambridge
36,200
99.18
United Kingdom
Caversham
73,800
202.19
United Kingdom
Cheltenham
44,000
120.55
United Kingdom
Croughton
38,100
104.38
United Kingdom
Fairford
35,900
98.36
United Kingdom
Farnborough
54,700
149.86
United Kingdom
Felixstowe
34,900
95.62
United Kingdom
Gibraltar
44,616
122.24
United Kingdom
Harrogate
39,100
107.12
United Kingdom
High Wycombe
62,100
170.14
United Kingdom
Huntingdon
37,300
102.19
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Bulletin No. 2021–11
Country
Location
Limitation on
Housing Expenses
(full year)
Limitation on
Housing Expenses
(daily)
United Kingdom
Kemble
35,900
98.36
United Kingdom
Lakenheath
48,700
133.42
United Kingdom
Liverpool
32,700
89.59
United Kingdom
London
72,300
198.08
United Kingdom
Loudwater
57,400
157.26
United Kingdom
Menwith Hill
39,100
107.12
United Kingdom
Mildenhall
48,700
133.42
United Kingdom
Oxfordshire
36,600
100.27
United Kingdom
Plymouth
36,600
100.27
United Kingdom
Portsmouth
36,600
100.27
United Kingdom
Reading
62,100
170.14
United Kingdom
Rochester
37,500
102.74
United Kingdom
Samlesbury
37,300
102.19
United Kingdom
Southampton
44,200
121.10
United Kingdom
Surrey
48,402
132.61
United Kingdom
Waterbeach
37,400
102.47
United Kingdom
Wiltshire
35,300
96.71
United Kingdom
All cities other than Basingstoke,
Bath, Belfast, Birmingham, Bracknell, Bristol, Brookwood, Brough,
Cambridge, Caversham, Chelmsford, Cheltenham, Chicksands,
Croughton, Dunstable, Edinburgh,
Edzell, Fairford, Farnborough,
Felixstowe, Ft. Halstead, Gibraltar,
Glenrothes, Greenham Common, Harrogate, High Wycombe,
Huntingdon, Hythe, Kemble,
Lakenheath, Liverpool, London,
Loudwater, Menwith Hill, Mildenhall, Nottingham, Oxfordshire,
Plymouth, Portsmouth, Reading,
Rochester, Samlesbury, Southampton, Surrey, Waterbeach, Welford,
West Byfleet, and Wiltshire.
37,300
102.19
Venezuela
Caracas
57,000
156.16
Vietnam
Hanoi
46,800
128.22
Vietnam
Ho Chi Minh City
42,000
115.07
Bulletin No. 2021–11
919
March 15, 2021
SECTION 4. OPTION TO APPLY 2021
ADJUSTED HOUSING LIMITATIONS
TO 2020 TAXABLE YEAR
For some locations, the limitation on
housing expenses provided in Section 3 of
this notice may be higher than the limitation on housing expenses provided in the
“Table of Adjusted Limitations for 2020”
in Notice 2020-13. A qualified individual
incurring housing expenses in such a location during 2020 may apply the adjusted
limitation on housing expenses provided
in Section 3 of this notice for 2021 in lieu
of the amounts provided in the “Table of
Adjusted Limitations for 2020” in Notice
2020-13 (and as set forth in the Instructions to Form 2555, Foreign Earned Income, for 2020).
The Treasury Department and the IRS
anticipate that future annual notices providing adjustments to housing expense
limitations will make a similar option
available to qualified individuals that incur housing expenses in the immediately
preceding year. For example, when adjusted housing expense limitations for 2022
are issued, it is expected that taxpayers
will be permitted to apply those adjusted
limitations to the 2021 taxable year.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
This notice supersedes Notice 202013, 2020-11 I.R.B. 502.
SECTION 6. EFFECTIVE DATE
This notice is effective for taxable years
beginning on or after January 1, 2021. However, as provided in Section 4, taxpayers
may apply the 2021 adjusted housing limitations contained in Section 3 of this notice to
their taxable year beginning in 2020.
Alabama
Alaska
American Samoa
Arizona
Arkansas
California
Colorado
Connecticut
March 15, 2021
SECTION 7. DRAFTING
INFORMATION
The principal author of this notice is
Kate Y. Hwa of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
Kate Y. Hwa at (202) 317-5001 (not a tollfree number).
2021 Calendar Year
Resident Population
Figures
Notice 2021-19
This notice advises State and local
housing credit agencies that allocate
low-income housing tax credits under § 42
of the Internal Revenue Code, and States
and other issuers of tax-exempt private
activity bonds under § 141, of the population figures to use in calculating: (1)
the 2021 calendar year population-based
component of the State housing credit
ceiling (Credit Ceiling) under § 42(h)(3)
(C)(ii); (2) the 2021 calendar year volume
cap (Volume Cap) under § 146; and (3) the
2021 volume limit (Volume Limit) under
§ 142(k)(5).
Generally, the population-based component of both the Credit Ceiling and
the Volume Cap are determined under
§ 146(j), which requires determining the
population figures for any calendar year
on the basis of the most recent census estimate of the resident population of a State
(or issuing authority) released by the U.S.
Census Bureau before the beginning of the
calendar year. Similarly, § 142(k)(5) bases
the Volume Limit on the State population.
Sections 42(h)(3)(H) and 146(d)(2)
require adjusting for inflation the population-based component of the Credit Ceiling and the Volume Cap. The Credit Ceiling adjustment for the 2021 calendar year
is in Rev. Proc. 2020-45, 2020-46 I.R.B
1016. Section 3.10 of Rev. Proc. 2020-45
provides that, for calendar year 2021, the
amount for calculating the Credit Ceiling
under § 42(h)(3)(C)(ii) is the greater of
$2.8125 multiplied by the State population, or $3,245,625. Further, section 3.21
of Rev. Proc. 2020-45 provides that the
amount for calculating the Volume Cap
under § 146(d)(1) for calendar year 2021
is the greater of $110 multiplied by the
State population, or $324,995,000.
For the 50 states, and the District of
Columbia, the population figures for calculating the Credit Ceiling, the Volume
Cap, and the Volume Limit for the 2021
calendar year are the resident population
estimates released electronically by the
U.S. Census Bureau on December 22,
2020, and described in Press Release
CB20-TPS.104. For Puerto Rico the
population figure for the 2021 calendar
year is the resident population estimate
released electronically by the U.S. Census Bureau on December 30, 2019 and
described in Press Release CB19-198.
For American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin
Islands, the population figures for the
2021 calendar year are the 2020 midyear
population figures in the U.S. Census
Bureau’s International Data Base (IDB).
The last announced update of the IDB
by the U.S. Census Bureau in 2020 was
electronically announced on December 15, 2020, in Press Release CB20TPS.96.
For convenience, these figures are reprinted below.
Resident Population Figures
4,921,532
731,158
47,392
7,421,401
3,030,522
39,368,078
5,807,719
3,557,006
920
Bulletin No. 2021–11
Delaware
District of Columbia
Florida
Georgia
Guam
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Northern Mariana Islands
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Virgin Islands, U.S.
Washington
West Virginia
Wisconsin
Wyoming
The principal authors of this notice are
Michael J. Torruella Costa, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), and Lewis Bell,
Bulletin No. 2021–11
986,809
712,816
21,733,312
10,710,017
168,489
1,407,006
1,826,913
12,587,530
6,754,953
3,163,561
2,913,805
4,477,251
4,645,318
1,350,141
6,055,802
6,893,574
9,966,555
5,657,342
2,966,786
6,151,548
1,080,577
1,937,552
3,138,259
1,366,275
8,882,371
2,106,319
19,336,776
10,600,823
765,309
51,851
11,693,217
3,980,783
4,241,507
12,783,254
3,193,694
1,057,125
5,218,040
892,717
6,886,834
29,360,759
3,249,879
623,347
8,590,563
106,290
7,693,612
1,784,787
5,832,655
582,328
Office of the Associate Chief Counsel
(Financial Institutions and Products). For
further information regarding this notice,
921
please contact Mr. Torruella Costa at (202)
317-4137 (not a toll-free number).
March 15, 2021
Guidance on the Employee
Retention Credit under
Section 2301 of the
Coronavirus Aid, Relief,
and Economic Security Act
Notice 2021-20
I. PURPOSE
This notice provides guidance on the
employee retention credit provided under
section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), Pub. L. No. 116-136, 134 Stat. 281
(March 27, 2020), as amended by section
206 of the Taxpayer Certainty and Disaster
Tax Relief Act of 2020 (Relief Act), which
was enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub.
L. No. 116-260, 134 Stat. 1182 (December
27, 2020). The guidance provided in this
notice addresses the employee retention
credit as it applies to qualified wages paid
after March 12, 2020, and before January
1, 2021. This notice does not address the
changes made by section 207 of the Relief Act that apply to the employee retention credit for qualified wages paid after
December 31, 2020. The Department of
the Treasury (Treasury) and the Internal
Revenue Service (IRS) will address the
modifications made by section 207 of the
Relief Act applicable to calendar quarters
in 2021 in future guidance.
II. BACKGROUND
Section 2301 of the CARES Act allows a credit (employee retention credit
or credit) against applicable employment
taxes for eligible employers, including
tax-exempt organizations, that pay qualified wages, including certain health plan
expenses, to some or all employees after
March 12, 2020, and before January 1,
2021. Section 206 of the Relief Act adopts
amendments and technical changes to section 2301 of the CARES Act for qualified
wages paid after March 12, 2020, and before January 1, 2021, primarily relating to
who may claim the credit.1 Section 207 of
the Relief Act amends section 2301 of the
CARES Act to extend the application of
the employee retention credit to qualified
wages paid after December 31, 2020, and
before July 1, 2021, and to modify the calculation of the credit amount for qualified
wages paid during that time.2
Following the enactment of the CARES
Act, the IRS posted Frequently Asked Questions (FAQs) on IRS.gov to aid taxpayers in
calculating and claiming the employee retention credit. As of the publication date of
this notice, the FAQs have not been updated
to reflect the changes made by the Relief
Act. This notice incorporates the information provided in the FAQs and addresses additional issues, including the amendments
to section 2301 of the CARES Act made by
section 206 of the Relief Act. This notice
also identifies instances in which section
206 of the Relief Act made changes to section 2301 of the CARES Act that resulted
in rules that are substantially similar to the
interpretation provided in the FAQs.
The remainder of this Section II provides a summary of the relevant provisions of section 2301 of the CARES Act,
as amended by section 206 of the Relief
Act, as they apply to qualified wages paid
in 2020. References to section 2301 of
the CARES Act include the amendments
made by section 206 of the Relief Act,
unless otherwise noted. This Section II
also includes an overview of the options
for employers to defer the deposit and
payment of the employer’s share of social security tax under section 2302 of the
CARES Act and to defer the withholding
and payment of the employee’s share of
social security tax under Notice 2020-65,
as modified by Notice 2021-11, which
may affect the amount that an employer
can request as an advance payment of the
credit. Section III of this notice provides
guidance in Q/A format regarding the application of section 2301 of the CARES
Act. Any term defined in this Section II or
within a Q/A in Section III applies to all
Q/As in Section III.
A. Claiming the Employee Retention
Credit and Accessing Funds in
Anticipation of the Credit
An employer that is an eligible employer as defined in section 2301(c)(2)
of the CARES Act and that, after March
12, 2020, and before January 1, 2021,
pays qualified wages, as defined in section 2301(c)(3) of the CARES Act, is
entitled to claim the employee retention
credit against the taxes imposed on employers by section 3111(a) of the Internal
Revenue Code (Code) (employer’s share
of the Old Age, Survivors, and Disability Insurance (social security tax)), after
these taxes are reduced by any credits
claimed under section 3111(e) and (f) of
the Code,3 sections 7001 and 7003 of the
Families First Coronavirus Response Act
(FFCRA), Pub. L. No. 116-127, 134 Stat.
178 (March 18, 2020),4 and section 303(d)
The amendments made by section 206 of the Relief Act take effect as if included in the provisions of the CARES Act to which they relate.
Section 207 of the Relief Act makes substantial changes to the employee retention credit that apply to qualified wages paid during the first and second quarter of 2021. Among other changes,
section 207 of the Relief Act (1) makes the employee retention credit available for eligible employers paying qualified wages that are paid after December 31, 2020, and before July 1, 2021;
(2) increases the maximum credit amount that may be claimed per employee (making it equal to 70 percent of $10,000 of qualified wages paid to an employee per calendar quarter); (3)
expands the category of employers that may be entitled to claim the credit; (4) modifies the gross receipts test; (5) modifies the definition of qualified wages; (6) broadens the denial of double
benefit rule and applies it to sections 41, 45A, 45P, 51, and 1396 of the Code; and (7) changes the eligibility to receive advance payments and limits the amount of the advances.
3
Section 3111(e) of the Code permits qualified tax-exempt organizations that hire qualified veterans to claim a credit against the employer’s share of social security tax imposed under section
3111(a) of the Code. Section 3111(f) of the Code permits a qualified small business to elect to apply part or all of its research credit available under section 41 against the tax imposed under
section 3111(a) of the Code.
4
Under sections 7001 and 7003 of the FFCRA, employers with fewer than 500 employees that provide paid sick and family leave, up to specified limits, to employees unable to work or
telework due to certain circumstances related to COVID-19 may claim tax credits. The FFCRA, as amended by the COVID-related Tax Relief Act of 2020 (COVID Relief Act), provides
employers with fewer than 500 employees (eligible FFCRA employers) refundable tax credits that reimburse them for the cost of providing paid sick and family leave wages to employees
unable to work or telework for reasons related to COVID-19 under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (Expanded
FMLA), respectively. The credits are allowed against the employer’s share of social security tax imposed under section 3111(a) of the Code, and so much of the taxes imposed on employers
under section 3221(a) of the Code as are attributable to the rate in effect under section 3111(a) of the Code. The FFCRA required eligible FFCRA employers to provide paid leave to such
employees for periods after March 31, 2020, and before January 1, 2021. The COVID Relief Act extended the period for which tax credits are available for employers providing paid sick and
family leave that otherwise would meet the requirements of the FFCRA until March 31, 2021, although the requirement that employers provide the leave expired on December 31, 2020. See
Section 286 of the COVID Relief Act, which was enacted as Subtitle B of Title II of Division N of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat.1182 (Dec. 27, 2020).
1
2
March 15, 2021
922
Bulletin No. 2021–11
of the Relief Act.5 Eligible employers subject to the Railroad Retirement Tax Act
(RRTA) are entitled to take the employee
retention credit against the taxes imposed
on employers by section 3221(a) of the
Code (Tier 1 tax under the RRTA) that are
attributable to the rate in effect under section 3111(a) of the Code, after these taxes
are reduced by any credits allowed under
sections 7001 and 7003 of the FFCRA and
section 303(d) of the Relief Act.
Section 2301(b)(3) of the CARES Act
provides that if the amount of the credit
exceeds the applicable employment taxes (reduced by any credits claimed under
section 3111(e) and (f) of the Code, sections 7001 and 7003 of the FFCRA, or
section 303(d) of the Relief Act) for any
calendar quarter, then the excess is treated as an overpayment and refunded to the
employer under sections 6402(a) or section 6413(b) of the Code.
Eligible employers report their total qualified wages for purposes of the
employee retention credit and claim the
employee retention credit (including any
refund in excess of the employer portion
of social security tax) on their federal employment tax returns; for most employers,
this is the quarterly Form 941, Employer’s
Quarterly Federal Tax Return.6
Section 2301(k) of the CARES Act
instructs the Secretary of the Treasury
(or the Secretary’s delegate) to waive the
penalty under section 6656 of the Code for
failure to deposit the employer share of
social security tax in anticipation of the allowance of the refundable credit under the
CARES Act. In addition, section 2301(l)
(1) and (2) of the CARES Act provides for
the advance payment of the credit (subject
to the limitations of the credit and based
on information the Secretary requires) and
the reconciliation of the advance payment
at the time of filing the employment tax
return.
Notice 2020-22, 2020-17 I.R.B. 664,
provides eligible employers relief from
the failure to deposit penalty imposed by
section 6656 of the Code for an employer’s failure to timely deposit employment
taxes to the extent the amounts not deposited are equal to or less than the amount of
refundable tax credits to which the eligible employer is entitled under the FFCRA
and the CARES Act.7 Under the notice, an
eligible employer will not be subject to a
penalty under section 6656 for failing to
deposit employment taxes in a calendar
quarter if (1) the eligible employer paid
qualified wages to its employees in the
calendar quarter prior to the time of the
required deposit, (2) the amount of employment taxes that the employer does not
timely deposit, reduced by the amount of
employment taxes not deposited in anticipation of the credits claimed under sections 7001 and 7003 of the FFCRA, is less
than or equal to the amount of the employer’s anticipated employee retention credit
for the calendar quarter as of the time of
the required deposit, and (3) the employer
did not seek payment of an advance credit
by filing Form 7200, Advance Payment of
Employer Credits Due to COVID-19, with
respect to the anticipated credits it relied
upon to reduce its deposits. Accordingly,
in anticipation of receiving the employee
retention credit, eligible employers can
(1) reduce their deposits of federal employment taxes, including withheld taxes,
that would otherwise be required, up to
the amount of the anticipated credit, and
(2) request an advance of the amount of
the anticipated credit that exceeds the reduced federal employment tax deposits by
filing Form 7200. Reductions in deposits
and advance payments are accounted for
on the eligible employer’s employment
tax return.
B. Definition of “Eligible Employer”
The employee retention credit is available only to employers that are eligible
employers. Section 2301(c)(2)(A) of the
CARES Act defines the term “eligible
employer” as any employer carrying on
a trade or business during calendar year
2020, and, with respect to any calendar
quarter, for which (1) the operation of the
trade or business carried on during calen-
dar year 2020 is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce,
travel, or group meetings (for commercial,
social, religious, or other purposes) due to
COVID-19, or (2) such calendar quarter is
within the period in which the employer
had a significant decline in gross receipts,
as described in section 2301(c)(2)(B) of
the CARES Act.
Section 2301(c)(2)(B)(i) of the CARES
Act provides that the period during which
an employer experiences a significant
decline in gross receipts begins with the
first calendar quarter beginning after December 31, 2019, for which gross receipts
(within the meaning of section 448(c) of
the Code) for the calendar quarter are less
than 50 percent of gross receipts for the
same calendar quarter in the prior year.
Section 2301(c)(2)(B)(ii) of the CARES
Act provides that the period during which
an employer experiences a significant decline in gross receipts ends with the calendar quarter that follows the first calendar
quarter beginning after a calendar quarter
described in section 2301(c)(2)(B)(i) of
the CARES Act for which gross receipts
of the employer are greater than 80 percent of gross receipts for the same calendar quarter in the prior year.
Section 2301(c)(2)(C)(i) of the CARES
Act provides that in the case of an organization described in section 501(c) of the
Code and exempt from tax under section
501(a) of the Code (a tax-exempt organization), sections 2301(c)(2)(A)(i) (relating to the requirement of carrying on a
trade or business) and 2301(c)(2)(A)(ii)(I)
(relating to a full or partial suspension of
the operation of a trade or business due to
a governmental order) apply to all operations of the organization. Section 2301(c)
(2)(C)(ii) of the CARES Act provides that,
in the case of a tax-exempt organization,
any reference to gross receipts in section
2301 of the CARES Act is treated as a reference to gross receipts within the meaning of section 6033 of the Code. Therefore, tax-exempt organizations should
refer to the definition of gross receipts un-
Section 303(d) of the Relief Act relates to a separate, unrelated employee retention credit for certain tax-exempt organizations affected by qualified natural disasters. Section 303(d)(3)(C)
(iii) of the Relief Act added a reference to section 303(d) to section 2301(b)(2) of the CARES Act, which impacts the ordering of the credits.
6
Some eligible employers will use other federal employment tax returns, such as the Form 944, Employer’s Annual Federal Tax Return, Form 943, Employer’s Annual Federal Tax Return for
Agricultural Employees, or Form CT-1, Employer’s Annual Railroad Tax Return, to report the amount of total qualified wages paid.
7
Treasury and IRS will address the application of Notice 2020-22 in relation to the employee retention credit available for quarters in 2021 in future guidance.
5
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March 15, 2021
der section 6033 of the Code to determine
whether they experienced a significant decline in gross receipts under section 2301
of the CARES Act.8
Section 2301(f) of the CARES Act
provides that the employee retention
credit does not apply to the Government
of the United States, the government of
any State or political subdivision thereof,
or any agency or instrumentality of those
governments. Accordingly, these entities
are not eligible employers.
Prior to the Relief Act amendments,
section 2301(j) of the CARES Act provided that an eligible employer that received
a covered loan under paragraph (36) of
section 7(a) of the Small Business Act (15
U.S.C. 636(a)), as added by section 1102
of the CARES Act (a Paycheck Protection
Program loan or PPP loan) would not be
eligible for the employee retention credit. Section 206 of the Relief Act amended
section 2301 of the CARES Act to permit
an employer that received a PPP loan to
be eligible to claim an employee retention
credit under section 2301 of the CARES
Act by striking section 2301(j) of the
CARES Act, effective retroactive to the
original effective date of the CARES Act.
C. Definition of “Qualified Wages”
Section 2301(a) of the CARES Act
provides that the credit amount is equal to
50 percent of qualified wages with respect
to each employee for each applicable calendar quarter in 2020.
For purposes of determining “qualified wages,” section 2301(c)(5)(A) of the
CARES Act provides that the term “wages” generally means wages as defined in
section 3121(a) of the Code and compensation as defined in section 3231(e)
of the Code. Section 2301(c)(5)(B) of
the CARES Act provides that “wages”
include amounts paid by an eligible employer to provide and maintain a group
health plan (as defined in section 5000(b)
(1) of the Code), but only to the extent that
the amounts are excluded from the gross
income of employees by reason of section 106(a) of the Code. Amounts treated
as wages under section 2301(c)(5)(B) of
the CARES Act are treated as paid with
respect to any employee (and with respect
to any period) to the extent the amounts
are properly allocable to the employee
(and to the period), and, except as otherwise provided by the Secretary of the
Treasury (Secretary), the allocation will
be treated as proper if made on the basis
of being pro rata among periods of coverage. References to “allocable qualified
health plan expenses” or “qualified health
plan expenses” in this notice are to the
health plan expenses described in section
2301(c)(5)(B) of the CARES Act.9
Section 2301(c)(3)(A) of the CARES
Act provides different definitions of
“qualified wages” depending on the size
of the employer, which is measured by the
average number of full-time employees
(within the meaning of section 4980H of
the Code) employed by the eligible employer during 2019.
Section 2301(c)(3)(A)(i) of the CARES
Act provides that if an eligible employer
averaged more than 100 employees during
2019 (large eligible employer), qualified
wages are those wages paid by the eligible
employer with respect to which an employee is not providing services due to circumstances described in section 2301(c)
(2)(A)(ii)(I) of the CARES Act (relating
to a full or partial suspension of the operation of a trade or business due to a governmental order) or section 2301(c)(2)(A)
(ii)(II) of the CARES Act (relating to a
significant decline in gross receipts). For
large eligible employers, section 2301(c)
(3)(B) of the CARES Act limits qualified
wages that may be taken into account to
the amount that the employee would have
been paid for working an equivalent duration during the 30 days immediately preceding the period in which the qualified
wages are paid or incurred.
Section 2301(c)(3)(A)(ii) of the
CARES Act provides that if an eligible
employer averaged 100 or fewer employ-
ees in 2019 (small eligible employer),
qualified wages are those wages paid by
the eligible employer with respect to an
employee during any period described in
section 2301(c)(2)(A)(ii)(I) of the CARES
Act (relating to a calendar quarter for
which the operation of a trade or business
is fully or partially suspended due to a
governmental order) or during a calendar
quarter within the period described in section 2301(c)(2)(A)(ii)(II) of the CARES
Act (relating to a significant decline in
gross receipts).
The flush language in section 2301(c)
(3)(A) of the CARES Act provides that
qualified wages do not include any wages taken into account for purposes of the
credits under sections 7001 or 7003 of the
FFCRA.
Section 2301(b)(1) of the CARES Act
limits the amount of qualified wages with
respect to any employee that may be taken into account under section 2301(a) of
the CARES Act to $10,000 for all calendar quarters in 2020. Therefore, the maximum credit amount with respect to each
employee for all four calendar quarters in
2020 is $5,000.
D. Election Not to Take Certain Wages
into Account and Coordination with
PPP Loan
Section 2301(g)(1) of the CARES Act
provides that section 2301 of the CARES
Act does not apply to qualified wages paid
by an eligible employer to the extent the
employer elects not to take them into account for purposes of section 2301 of the
CARES Act (at such time and in such
manner as the Secretary may prescribe).
Section 2301(g)(2) of the CARES Act
provides that the Secretary, in consultation with the Administrator of the Small
Business Administration, will issue guidance providing that payroll costs paid
during the covered period for a PPP loan
will not fail to be treated as qualified wages under section 2301 of the CARES Act,
if an employer makes an election under
Prior to the changes made by the Relief Act, section 448(c) of the Code applied to determine gross receipts of tax-exempt organizations under section 2301 of the CARES Act. Although
the Relief Act changed the definition of gross receipts applicable to tax-exempt organizations to reference the definition under section 6033 of the Code, the result under section 2301 of the
CARES Act, as revised by the Relief Act, is substantially the same as the interpretation of “gross receipts” applicable to tax-exempt organizations in the FAQs posted on IRS.gov in 2020.
9
The Relief Act removed the term “qualified health plan expenses” from the definition of qualified wages under section 2301(c)(3) of the CARES Act and included health plan expenses as
part of the definition of wages in section 2301(c)(5) of the CARES Act. The result under section 2301 of the CARES Act, as revised by the Relief Act, is substantially the same as the interpretation provided in the FAQs posted on IRS.gov in 2020.
8
March 15, 2021
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Bulletin No. 2021–11
section 2301(g)(1) of the CARES Act, to
the extent that the PPP loan of the eligible
employer is not forgiven by reason of a
decision under section 7A(g) of the Small
Business Act.10
Related to section 2301(g)(2) of the
CARES Act, section 206(e)(2) of the Relief Act provides a special rule for employers that filed an employment tax return before December 27, 2020. Section
206(e)(2)(A) of the Relief Act provides
that those employers may elect to treat any
“applicable amount” as an amount paid in
the fourth calendar quarter of 2020. Section 206(e)(2)(B) of the Relief Act defines
the “applicable amount,” in part, as the
amount of wages that are permitted to be
treated as qualified wages under guidance
issued pursuant to section 2301(g)(2) of
the CARES Act (relating to the decision
not to forgive a loan under section 7A(g)
of the Small Business Act), that were paid
in the first, second, or third calendar quarter of 2020, and that were not taken into
account by the taxpayer in calculating the
employee retention credit for such calendar quarter (special fourth quarter rule).11
E. Aggregation Rules
Section 2301(d) of the CARES Act
provides that all persons treated as a single employer under section 52(a) or (b) of
the Code, or section 414(m) or (o) of the
Code, will be treated as a single employer for purposes of the employee retention
credit. While this notice describes the aggregation rules under sections 52(a) and
(b) and 414(m) and (o) in general terms, it
does not provide separate guidance on the
substantive requirements of those aggregation rules or otherwise interpret those
rules.
F. Other Rules Related to the
Employee Retention Credit
Section 2301(e) of the CARES Act provides that rules similar to section 280C(a)
of the Code apply for purposes of the employee retention credit. Section 280C(a) of
the Code generally disallows a deduction
for the portion of wages or salaries paid or
incurred equal to the sum of certain credits
determined for the taxable year. Accordingly, a similar deduction disallowance applies
under section 2301(e) of the CARES Act
with regard to the employee retention credit, such that an employer’s deduction for
qualified wages, including qualified health
plan expenses, is reduced by the amount of
the employee retention credit.
Section 2301(e) of the CARES Act also
provides that rules similar to the rules of
section 51(i)(1) of the Code (relating to the
work opportunity credit) apply for purposes of the employee retention credit. Section
51(i)(1) provides that wages paid to “related individuals” (within the meaning of
section 51(i)(1)) may not be taken into account for determining the credit under section 51(a) of the Code. Accordingly, wages
paid to related individuals may not be taken
into account for determining qualified wages for the employee retention credit. Similarly, section 2301(h)(1) of the CARES Act
provides that an employee will not be included for purposes of computing the employee retention credit for any period that
an employer is allowed a work opportunity
credit under section 51 with respect to that
employee for that period.
Section 2301(h)(2) of the CARES Act
states that any wages taken into account in
determining the employee retention credit
will not be taken into account for purposes of determining the credit allowed under
section 45S of the Code (relating to paid
and family medical leave).
Finally, section 2301(h)(3) of the
CARES Act provides that the employee retention credit is treated as a credit described
in section 3511(d)(2) of the Code.12
G. Regulations and Guidance
Section 2301(l) of the CARES Act
requires the Secretary to issue forms, in-
structions, regulations, and guidance, as
necessary, to allow for the advance payment of the credit, provide for reconciliation of the advance payment at the time
of filing the employment tax return, and to
apply the credit to third-party payers. Section 2301(l) of the CARES Act also gives
the Secretary authority to issue guidance
on the application of the definition of a
“significant decline in gross receipts” in
the case of any employer that was not carrying on a trade or business for all or part
of the same calendar quarter in the prior
year and to prevent avoidance of the purposes of the limitations applicable to the
employee retention credit.
H. Deferral Under Section 2302 of the
CARES Act
Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer’s share of
social security tax and the portion of Tier
1 tax under the RRTA that is equivalent
to the employer’s share of social security tax for the period of March 27, 2020,
through December 31, 2020. Section 2302
does not impact an employer’s eligibility to claim the employee retention credit. However, because an employer may
defer deposits under section 2302 before
reducing deposits in anticipation of claiming the credit, the deferral may affect the
amount that an employer may request as
an advance of the credit.
I. Deferral Under Notice 2020-65 as
Modified by Notice 2021-11
Notice 2020-65, 2020-38 I.R.B. 567,
as modified by Notice 2021-11, 2021-6
I.R.B. 827, permits employers to postpone
the withholding and payment of the employee’s share of social security tax or the
employee’s share of Tier 1 tax under the
RRTA that is equivalent to the employee’s
share of social security tax with respect
to applicable wages (as defined in Notice
Section 7A(g) of the Small Business Act (15 U.S.C. 636(a)) sets forth the timing rule for lenders that receive an application for loan forgiveness from eligible recipients that received a
Paycheck Protection Program loan. Specifically, section 7A(g) of the Small Business Act requires lenders to provide a decision regarding forgiveness no later than 60 days after the date
on which the lender receives an application of loan forgiveness from an eligible recipient. The Relief Act added section 2301(g)(2) to the CARES Act when it struck section 2301(j) of the
CARES Act, discussed above.
11
The special fourth quarter rule also applies to the applicable amount described in section 2301(c)(5)(B) of the CARES Act, which is qualified health plan expenses.
12
Section 3511 provides rules for Certified Professional Employer Organizations (CPEOs) and their customers with regard to employment taxes on wages paid by the CPEO to the customer’s
employees. Section 3511(d) provides the following rules for certain credits specified in section 3511(d)(2): (1) credits with respect to a customer’s work site employee apply to the customer,
not the CPEO; (2) the customer, not the CPEO, takes into account wages and employment taxes paid by the CPEO with respect to the work site employee and for which the CPEO receives
payment from the customer; and (3) the CPEO must furnish the customer and the Secretary with any information necessary for the customer to claim the credits.
10
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925
March 15, 2021
2020-65) paid to an employee on a pay
date during the period beginning on September 1, 2020, and ending on December
31, 2020. Deferral under Notice 2020-65,
as modified by Notice 2021-11, during the
third or fourth quarter of 2020 does not
impact an employer’s eligibility to claim
the employee retention credit. However,
because an employer may defer deposits
of the employee’s share of social security
tax before reducing deposits in anticipation of claiming the credit, the deferral
may affect the amount that an employer
may request as an advance of the credit.
III. GUIDANCE
This Section III provides guidance in
Q/A format on the following topics:
A. Eligible Employers
B. Aggregation Rules
C. Governmental Orders
D. Full or Partial Suspension of Trade or
Business Operations
E. Significant Decline in Gross Receipts
F. Maximum Amount of Employer’s
Employee Retention Credit
G. Qualified Wages
H. Allocable Qualified Health Plan Expenses
I. Interaction with Paycheck Protection
Program (PPP) Loans
J. Claiming the Employee Retention
Credit
K. Special Issues for Employees: Income and Deduction
L. Special Issues for Employers: Income
and Deduction
M. Special Issues for Employers: Use of
Third-Party Payers
N. Substantiation Requirements
A. Eligible Employers
Question 1: What is a “trade or business” for purposes of the employee retention credit?
Answer 1: For purposes of the employee retention credit, “trade or business” has
the same meaning as when used in section 162 of the Code other than the trade
or business of performing services as an
employee. Under section 162, an activity
does not qualify as a trade or business unless its primary purpose is to make a profit and it is carried on with regularity and
continuity. The facts and circumstances of
March 15, 2021
each case determine whether an activity is
a trade or business. A taxpayer does not
necessarily need to make a profit in any
particular year in order to be in a trade or
business as long as a good faith profit motive is present.
For purposes of the employee retention credit, a tax-exempt organization described in section 501(c) of the Code that
is exempt from tax under section 501(a)
of the Code is deemed to be engaged in a
“trade or business” with respect to all operations of the organization.
Question 2: How does an organization
determine if it is considered an “instrumentality” of the Federal government, or
of a State or local government, for purposes of the employee retention credit?
Answer 2: In general, for employment
tax purposes, the IRS considers six factors
in determining whether an organization is
a government instrumentality. The six factors that are used to determine whether an
organization is an instrumentality are:
• whether the organization is used for a
governmental purpose and performs a
governmental function;
• whether performance of the organization’s function is on behalf of one or
more States or political subdivisions;
• whether there are any private interests
involved, or whether the States or political subdivisions involved have the
powers and interests of an owner;
• whether control and supervision of
the organization is vested in a public
authority or authorities;
• if express or implied statutory or
other authority is necessary for the
creation and/or use of such an instrumentality, and whether such authority
exists; and
• the degree of financial autonomy and
the source of its operating expenses.
See Rev. Rul. 57-128, 1957-1 C.B. 311.
No one factor is determinative; instrumentality status is based on all the facts
and circumstances. These same factors
apply to identify an instrumentality of the
Federal government, or of a State or local
government, for purposes of the employee
retention credit.
Question 3: Are tribal governments
and tribal entities eligible for the employee retention credit?
Answer 3: Yes. Any tribal government
or tribal entity that operates a trade or
926
business may be an eligible employer for
purposes of the employee retention credit
if it otherwise satisfies the eligibility requirements to claim the credit.
As a general rule, whether activities
constitute a trade or business for purposes of the employee retention credit is determined under section 162 of the Code.
However, because tribal governments are
not subject to income tax under the Code
and, therefore, are generally not otherwise
required to determine whether an activity
of the tribe constitutes the carrying on of
a trade or business under section 162, the
Treasury Department and IRS have concluded that the section 162 standards are
not the appropriate bases for determining
whether a tribal government is carrying on
a trade or business for purposes of the employee retention credit. Instead, solely for
purposes of the employee retention credit,
a tribal government is treated as carrying
on trade or business activities, and all activities conducted by the tribal government will be considered part of such trade
or business activities, without the need for
further analysis of whether those activities
meet a particular standard for identifying
trade or business operations. In addition,
solely for purposes of the employee retention credit, any entity that a tribal government reasonably believes shares the same
tax status as the tribal government (tribal
entity employer) may also consider all of
its activities as trade or business activities.
Any entity other than a tribal government
or a tribal entity employer must determine
whether its activities constitute carrying
on a trade or business under section 162
for purposes of determining eligibility for
the employee retention credit.
Question 4: Are employers in U.S. Territories eligible for the employee retention
credit?
Answer 4: Yes. If an employer in a U.S.
Territory otherwise qualifies for the employee retention credit then the employer is entitled to claim the credit. Section
2301(c)(5)(A) of the CARES Act provides
that qualified wages are, in general, wages
as defined in section 3121(a) of the Code
for purposes of the Federal Insurance
Contributions Act (FICA) tax. Payments
of wages by employers in U.S. Territories
are wages within the meaning of section
3121(a). Accordingly, eligible employers
include employers in the U.S. Territories
Bulletin No. 2021–11
that pay qualified wages and otherwise
meet the requirements for the credit.
Question 5: Are self-employed individuals eligible for the employee retention
credit?
Answer 5: Self-employed individuals
are not eligible for the employee retention
credit with respect to their own self-employment earnings. However, a self-employed individual who employs other
individuals in the self-employed individual’s trade or business and who otherwise
meets the requirements to be an eligible
employer may be eligible for the employee retention credit with respect to qualified wages the self-employed individual
pays to the employees.
Question 6: Are household employers
eligible for the employee retention credit?
Answer 6: No. Household employers
are not considered to operate a trade or
business and, therefore, are not eligible
for the employee retention credit with respect to their household employees. However, household employers who are also
employers operating a trade or business
and who generally report employment
taxes attributable to their household employees on the same federal employment
tax return used to report the employment
taxes attributable to the employees of the
trade or business, may be eligible for the
employee retention credit, but only with
respect to the trade or business employees
and their qualified wages paid with respect to the trade or business.
B. Aggregation Rules
Question 7: What is the general impact
of the aggregation rules that treat certain
entities as a single employer?
Answer 7: All entities that are members of a controlled group of corporations
or trades or businesses under common
control under sections 52(a) or (b) of the
Code, members of an affiliated service
group under section 414(m) of the Code,
or otherwise aggregated under section
414(o) of the Code are treated as a single employer for purposes of applying
the employee retention credit. As a result,
employers required to be aggregated are
treated as a single employer for purposes
of the following rules applicable to the
employee retention credit:
• Determining whether the employer
has a trade or business operation that
was fully or partially suspended due
to orders related to COVID-19 from
an appropriate governmental authority;
• Determining whether the employer
experiences a significant decline in
gross receipts;
• Determining whether the employer
averaged more than 100 full-time employees; and
• Determining the maximum credit
amount per employee.
The aggregation rules under section
52(a) and (b) generally apply to determine which entities are treated as a single
employer for purposes of the tax credits
available to an employer under section 51
of the Code, as well as for other Code provisions.
Under section 52(a), corporate taxpayers that are members of a controlled
group of corporations are treated as a
single employer. A controlled group of
corporations may be either a parent-subsidiary controlled group, a brother-sister
controlled group, or a combined group of
corporations.13 The section 52(b) aggregation rules apply to partnerships, trusts, estates, corporations, or sole proprietorships
in trades or businesses under common
control. Under this rule, entities are treated as a single employer if they are under
common control applying rules similar
to the parent-subsidiary or brother-sister
controlled group rules or the rules for a
combined group of corporations.
Section 414(m)(1) provides that employees of members in an affiliated ser-
vice group under section 414(m)(2) and
(5) are treated as employed by a single
employer for purposes of employee benefit requirements listed in section 414(m)
(4).14 In addition, section 414(o) generally provides that the Secretary shall prescribe regulations necessary to prevent
avoidance of any of the employee benefit requirements listed in section 414(m)
(4) through the use of separate organizations or other arrangements. Many Code
provisions, particularly those addressing
employee benefits, apply the aggregation
rules of section 414(m) and (o). For example, section 414(t) generally provides that
the aggregation rules in section 414(m)
and (o) apply to various Code provisions
listed in section 414(t)(2).
Question 8: How is the employee retention credit allocated to an eligible employer that is a member of an aggregated
group?
Answer 8: The amount of the employee
retention credit with respect to a member
of the aggregated group is based on the
member’s proportionate share of the qualified wages giving rise to the credit for
each calendar quarter (or other prescribed
period for which a tax return is required to
be filed) for which the credit is claimed.
Question 9: How do the aggregation
rules apply to tribes and tribal entities?
Answer 9: In determining eligibility for
the employee retention credit, all employers must apply the aggregation rules under
section 52(a) and (b) and section 414(m)
and (o) of the Code. For purposes of the
employee retention credit, tribal governments and tribal entity employers (as defined in Q/A–3) should use a reasonable,
good faith interpretation in determining
how the aggregation rules apply.
C. Governmental Orders
Question 10: What “orders from an
appropriate governmental authority” may
be taken into account by an employer for
A parent-subsidiary controlled group of corporations is one or more chains of corporations where the common parent corporation owns more than 50 percent of the total combined voting
power of all classes of stock entitled to vote, or more than 50 percent of the value of all classes of stock of each corporation. A brother-sister controlled group of corporations is two or more
corporations where (1) five or fewer persons who are individuals, estates, or trusts own at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or the
total value of shares of all classes of stock of each corporation; and (2) the same five or fewer persons, taking into account ownership only to the extent that it is identical with respect to each
corporation, own more than 50 percent of the total voting power of all classes of stock entitled to vote, or total value of shares of all classes of stock of each corporation. A combined group of
corporations is three or more corporations, each of which is a member of either a parent-subsidiary or a brother-sister controlled group, and at least one of which is both the common parent
of a parent-subsidiary controlled group and also a member of a brother-sister controlled group. See Treas. Reg. § 1.52-1.
14
There are three types of affiliated service groups described in section 414(m). The first and second types of affiliated service groups are described under section 414(m)(2) and require a
combination of common ownership and performance of services among certain organizations. The third type of affiliated service group is described under section 414(m)(5), requires no
common ownership, and aggregates employers based on the performance of management functions by one organization for another organization (and related organizations).
13
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927
March 15, 2021
purposes of determining eligibility for the
employee retention credit?
Answer 10: Orders, proclamations,
or decrees from the Federal government
or any State or local government may
be taken into account by an employer as
“orders from an appropriate governmental authority” only if they limit “commerce, travel, or group meetings (for
commercial, social, religious, or other
purposes) due to the coronavirus disease 2019 (COVID-19)” and relate to the
suspension of an employer’s operation
of its trade or business. Orders that are
not from the Federal government must
be from a State or local government that
has jurisdiction over the employer’s operations. These orders are referred to as
“governmental orders.” Whether orders,
proclamations or decrees are governmental orders is determined without regard to
the level of enforcement of the governmental order.
Statements from a governmental official, including comments made during
press conferences or in interviews with
the media, do not rise to the level of a
governmental order for purposes of the
employee retention credit. Additionally,
the declaration of a state of emergency
by a governmental authority is not sufficient to rise to the level of a governmental order if it does not limit commerce,
travel, or group meetings in any manner.
Further, such a declaration that limits
commerce, travel, or group meetings, but
does so in a manner that does not relate
to the suspension of an employer’s operation of its trade or business does not
rise to the level of a governmental order
for purposes of the employer’s determination of its eligibility for the employee
retention credit.
Governmental orders include:
• An order from the city’s mayor stating that all non-essential businesses
must close for a specified period;
• A State’s emergency proclamation
that residents must shelter in place
for a specified period, other than residents who are employed by an essential business and who may travel to
and work at the workplace location;
• An order from a local official imposing a curfew on residents that impacts
the operating hours of a trade or business for a specified period;
March 15, 2021
•
An order from a local health department mandating a workplace closure
for cleaning and disinfecting.
Whether the operations of a trade or business are considered essential or non-essential will often vary from jurisdiction
to jurisdiction. An employer should determine whether it is operating an essential
or non-essential business by referring to
the governmental order affecting the employer’s operation of its trade or business.
Example 1: Governor of State Y issues an order
that all non-essential businesses must close from
March 20, 2020, until April 30, 2020. The order
provides a list of non-essential businesses, including
gyms, spas, nightclubs, barber shops, hair salons, tattoo parlors, physical therapy offices, waxing salons,
fitness centers, bowling alleys, arcades, racetracks,
indoor children’s play areas, theaters, chiropractors,
planetariums, museums, and performing arts centers. The governor’s order is a governmental order
limiting the operations of non-essential businesses;
therefore, employers with non-essential businesses
to which the governmental order applies may be
considered eligible employers for purposes of the
employee retention credit.
Example 2: Mayor of City Y holds a press conference encouraging residents to practice social
distancing to prevent the spread of COVID-19. The
statement during the press conference is not an order limiting commerce, travel, or group meetings.
Accordingly, the mayor’s statement would not be a
governmental order for purposes of the employee
retention credit.
Example 3: A restaurant is ordered by a local
health department to close due to a health code violation. Since the order is unrelated to COVID-19,
it would not be considered a governmental order for
purposes of the employee retention credit.
D. Full or Partial Suspension of Trade
or Business Operations
Question 11: If a governmental order
requires non-essential businesses to suspend operations but allows essential businesses to continue operations, is an essential business considered to have a full or
partial suspension of operations due to a
governmental order?
Answer 11: An employer that operates
an essential business is not considered to
have a full or partial suspension of operations if the governmental order allows
all of the employer’s operations to remain
open. However, an employer that operates
an essential business may be considered to
have a partial suspension of operations if,
under the facts and circumstances, more
than a nominal portion of its business operations are suspended by a governmental order. For example, an employer that
928
maintains both essential and non-essential business operations, each of which
are more than nominal portions of the
business operations, may be considered
to have a partial suspension of its operations if a governmental order restricts the
operations of the non-essential portion of
the business, even if the essential portion
of the business is unaffected. In addition,
an essential business that is permitted to
continue its operations may, nonetheless,
be considered to have a partial suspension
of its operations if a governmental order
requires the business to close for a period
of time during normal working hours.
Solely for purposes of this employee
retention credit, a portion of an employer’s business operations will be deemed
to constitute more than a nominal portion
of its business operations if either (i) the
gross receipts from that portion of the
business operations is not less than 10
percent of the total gross receipts (both
determined using the gross receipts of the
same calendar quarter in 2019), or (ii) the
hours of service performed by employees in that portion of the business is not
less than 10 percent of the total number
of hours of service performed by all employees in the employer’s business (both
determined using the number of hours of
service performed by employees in the
same calendar quarter in 2019).
Question 12: If a governmental order
causes the suppliers to a business to suspend their operations, is the business considered to have a suspension of operations
due to a governmental order?
Answer 12: An employer may be considered to have a full or partial suspension
of operations due to a governmental order
if, under the facts and circumstances, the
business’s suppliers are unable to make
deliveries of critical goods or materials
due to a governmental order that causes
the supplier to suspend its operations. If
the facts and circumstances indicate that
the business’s operations are fully or partially suspended as a result of the inability
to obtain critical goods or materials from
its suppliers because they were required
to suspend operations, then the business
would be considered an eligible employer for calendar quarters during which its
operations are fully or partially suspended
and may be eligible to receive the employee retention credit.
Bulletin No. 2021–11
Example: Employer A operates an auto parts
manufacturing business. Employer A’s supplier of
raw materials is required to fully suspend its operations due to a governmental order. Employer A is
unable to procure these raw materials from an alternate supplier. As a consequence of the suspension
of Employer A’s supplier, Employer A is not able to
perform its operations for a period of time. Under
these facts and circumstances, Employer A would be
considered an eligible employer during this period
because its operations have been suspended due to
the governmental order that suspended operations of
its supplier.
Question 13: If a governmental order
causes the customers of a business to stay
at home, or otherwise causes a reduction
in demand for its products or services,
and the business responds to the lack of
demand by suspending some or all of its
operations, is the business considered to
have a suspension of operations due to a
governmental order?
Answer 13: No. An employer that suspends some or all of its operations because
its customers are subject to a government
order requiring them to stay at home or
otherwise causing a reduction in demand
for its products or services is not considered to have a full or partial suspension of
its operations due to a governmental order.
If an employer’s operations are not suspended due to a governmental order but
the employer experiences a reduction in
demand, the employer may be considered
an eligible employer if it experiences a
significant decline in gross receipts.
Example: Employer B, an automobile repair
service business, is an essential business and is not
required to close its locations or suspend its operations. Due to a governmental order that limits travel
and requires members of the community to stay at
home except for certain essential travel, such as going to the grocery store, Employer B’s business has
declined significantly. Employer B suspends its operations due to the lack of demand. Employer B is
not considered to have a full or partial suspension of
operations due to a governmental order.
Question 14: If an employer voluntarily suspends operation of a trade or business or voluntarily reduces hours due to
COVID-19, but the suspension or reduction in hours is not due to a governmental order, may the employer qualify as an
eligible employer solely on the basis of
the voluntary suspension or reduction in
hours?
Answer 14: No. An employer that
voluntarily suspends operation of a trade
or business or voluntarily reduces hours
due to COVID-19 is not eligible for the
employee retention credit on the basis of
Bulletin No. 2021–11
a full or partial suspension of its operations.
Question 15: If a governmental order
requires an employer to close its workplace, but the employer is able to continue
operations comparable to its operations
prior to the closure by requiring employees to telework, is the employer considered to have a suspension of operations?
Answer 15: No. If an employer’s workplace is closed by a governmental order,
but the employer is able to continue operations comparable to its operations prior to
the closure, including by requiring its employees to telework, the employer’s operations are not considered to have been fully or partially suspended as a consequence
of a governmental order.
However, if the closure of the workplace causes the employer to suspend
business operations for certain purposes,
but not others, it may be considered to
have a partial suspension of operations
due to the governmental order.
Example 1: Employer C, a software development company, maintains an office in a city where
the mayor has ordered that only essential businesses
may operate. Employer C’s business is not essential
under the mayor’s order, and therefore Employer C
is required to close its office. Prior to the governmental order, all employees at the company teleworked
once or twice per week, and business meetings were
held at various locations. Following the governmental order, the company ordered mandatory telework
for all employees and limited client meetings to telephone or video conferences. Employer C’s business
operations are not considered to be fully or partially
suspended due to the governmental order because
the employer is able to continue its business operations in a comparable manner.
Example 2: Employer D operates a physical
therapy facility in a city where the mayor has ordered that only essential businesses may operate.
Employer D’s business is not considered essential
under the mayor’s order, and therefore Employer D
is required to close its workplace. Prior to the governmental order, none of Employer D’s employees
provided services through telework and all appointments, administration, and other duties were carried
out at Employer D’s workplace. Following the governmental order, Employer D moves to an online
format and is able to serve some clients remotely,
but employees cannot access specific equipment
or tools that they typically use in therapy and not
all clients can be served remotely. Employer D’s
business operations are considered to be partially
suspended due to the governmental order because
Employer D’s workplace, including access to physical therapy equipment, is central to its operations,
and the business operations cannot continue in a
comparable manner.
Example 3: Employer E, a scientific research
company with facilities in a state in which the governor has ordered that only essential businesses may
929
operate, conducts research in a laboratory setting and
through the use of computer modeling. Employer E’s
business is not essential under the governor’s order,
and therefore Employer E is required to close its
workplace. Prior to the governmental order, Employer E’s laboratory-based research operations could
not be conducted remotely (other than certain related administrative tasks) and employees involved in
laboratory-based research worked on-site. Employer
E’s computer modeling research operations could be
conducted remotely, and employees who engaged
in this portion of the business often teleworked.
Following the governmental order, the employees
engaged in the laboratory-based research cannot perform their work while the facility is closed and are
limited to performing administrative tasks during the
closure. In contrast, all employees engaged in computer modeling research are directed to telework, and
those business operations are able to continue in a
comparable manner. Employer E’s business operations are considered to be partially suspended due to
the governmental order because Employer E’s laboratory-based research business operations cannot
continue in a comparable manner.
Question 16: What factors should be
considered in determining if an employer
is able to continue operations comparable
to its operations prior to closure such that
the employer’s operations are not considered to have been fully or partially suspended due to a governmental order?
Answer 16: The following factors
should be considered in determining if an
employer is able to continue comparable
operations, although additional factors
may be considered as well if relevant:
(1) Employer’s telework capabilities.
Determine whether an employer has adequate support (IT and otherwise) such that
operations can continue via work from another location.
(2) Portability of employees’ work. Determine the amount of portable work, or
work otherwise adaptable to be performed
from a remote location, within an employer’s trade or business operations.
(3) Need for presence in employee’s
physical work space. Evaluate the role that
the employer’s physical work space plays
in an employer’s trade or business (may
be critical and necessary, beneficial but
not necessary, or merely convenient). If
the employer’s physical work space is so
critical to its trade or business operations
that tasks central to the trade or business’s
operations are unable to be performed
remotely, then this factor alone indicates
that the employer is not able to continue
comparable operations. Examples of work
space that is critical include laboratories
or manufacturing involving special equip-
March 15, 2021
ment or materials that cannot be accessed
or operated remotely.
(4) Transitioning to telework operations. If an employer can conduct comparable operations via telework, but the
employer’s operations did not previously
allow for telework, or allowed for only
minimal telework, then some adjustment
period is expected, and, generally, the
employer’s operations are not considered partially suspended during that period. However, if an employer incurs a
significant delay (for example, beyond 2
weeks) in moving operations to comparable telework (for example, implementing
telework policies or providing employees
with equipment to telework), then the employer’s trade or business operations may
be deemed subject to a partial suspension
during that transition period.
Question 17: If a governmental order
requires an employer to close its workplace for certain purposes, but the workplace may remain operational for other
limited purposes, is the employer considered to have a suspension of operations
due to the governmental order?
Answer 17: If an employer’s workplace is closed due to a governmental order for certain purposes, but the employer’s workplace may remain open for other
limited purposes, the employer’s operations would be considered to be partially
suspended if, under the facts and circumstances, the operations that are closed are
more than a nominal portion of its business operations and cannot be performed
remotely in a comparable manner. If all,
or all but a nominal portion, of an employer’s business operations may continue, but
the operations are subject to modification
due to a governmental order (for example,
to satisfy distancing requirements), such a
modification of operations is considered
to be a partial suspension of business operations due to a governmental order if
the modification required by the governmental order has more than a nominal effect on the business operations under the
facts and circumstances. See Q/A 18 for
a description of factors that may be used
for determining if a modification required
by a governmental order has more than a
nominal effect on business operations.
Example 1: Employer F, a restaurant business,
must close its restaurant to on-site dining due to a
governmental order closing all restaurants, bars, and
similar establishments for sit-down service. Employ-
March 15, 2021
er F is allowed to continue food or beverage sales to
the public on a carry-out, drive-through, or delivery
basis. On-site dining is more than a nominal portion
of Employer F’s business operations. Employer F’s
business operations are considered to be partially
suspended because, under the facts and circumstances, more than a nominal portion of its business operations—its indoor and outdoor dining service—is
suspended due to the governmental order.
Example 2: Same facts as Example 1, except that
two months later, under a subsequent governmental order, Employer F is permitted to offer sit-down
service in its outdoor space, but its indoor dining
service continues to be closed. During this period,
Employer F is allowed to operate only its outdoor
sit-down and carry-out service in accordance with
the order. Indoor dining is more than a nominal portion of Employer F’s business operations. Employer
F’s business operations are considered to be partially
suspended because, under the facts and circumstances, more than a nominal portion of its business operations – its indoor dining service – is suspended due to
a governmental order. The following month, under a
further governmental order, Employer F is permitted
to offer indoor dining service, in addition to outdoor
sit-down and carry-out service, provided that all
tables in the indoor dining room must be spaced at
least six feet apart. This spacing constraint has more
than a nominal effect on Employer F’s business operations. During this period, even though Employer
F resumed all categories of its business operations,
Employer F’s business operations continue to be partially suspended because, under the facts and circumstances, the governmental order restricting its indoor
dining service has more than a nominal effect on its
operations.
Example 3: Employer G, a retail business, must
close its retail storefront locations due to a governmental order. The retail business also maintains a
website through which it continues to fulfill online
orders; the retailer’s online ordering and fulfillment
system is unaffected by the governmental order. The
retail storefront locations are more than a nominal
portion of Employer G’s business operations. Employer G’s business operations are considered to
have been partially suspended due to the governmental order requiring it to close its retail storefront
locations, which are more than a nominal portion of
its business operations.
Example 4: Employer H, a hospital, is considered to be operating an essential business under a
governmental order with respect to its emergency
department, intensive care, and other services for
conditions requiring urgent medical care. However,
the governmental order treats Employer H’s elective
and non-urgent medical procedures as non-essential
business operations and prevents Employer H from
performing these services. Employer H suspends
operations related to elective and non-urgent medical procedures, which are more than a nominal portion of Employer H’s business operations. Although
Employer H is an essential business, Employer H is
considered to have a partial suspension of operations
due to the governmental order that prevents Employer H from performing elective and non-urgent
medical procedures, which are more than a nominal
portion of its business operations under the facts and
circumstances.
930
Example 5: Employer I, a grocery store, is considered to be operating an essential business under
a governmental order. However, the governmental
order requires grocery stores to discontinue their
self-serve offerings, such as salad bars, though they
may offer prepared or prepackaged food. Employer I
modifies its operations to close its salad bar and other
self-serve offerings and instead offers prepackaged
salads and other items. The salad bar and other selfserve offerings are not more than a nominal portion
of Employer I’s business operations. Further, the
governmental order requiring Employer I to discontinue its self-serve offerings does not have more than
a nominal effect on Employer I’s business operations
under the facts and circumstances, even though Employer I was required to modify its business operations. Accordingly, Employer I’s business operations
are not considered to be partially suspended due to a
governmental order.
Example 6: Employer J, a large retailer, is required to close its storefront location due to a governmental order, but is permitted to provide customers with curbside service to pick up items ordered
online or by phone. The retail storefront location is
more than a nominal portion of Employer J’s business operations. During this period, Employer J’s
business operations are considered to have been
partially suspended due to the governmental order
requiring it to close its storefront location. Two
months later, under a subsequent governmental order, Employer J is permitted to reopen its storefront
location. Under the subsequent governmental order,
however, Employer J must enforce social distancing
guidelines that require Employer J to admit only
a specified number of customers into the store per
1,000 square feet. While the governmental order results in customers waiting in line for a short period
of time to enter the store during certain busy times of
the week, the size of Employer J’s storefront is large
enough that it is able to accommodate all of its customers after these short waits outside the store. The
governmental order requiring Employer J to enforce
social distancing guidelines does not have more than
a nominal effect on Employer J’s business operations
under the facts and circumstances, even though Employer J is required to modify its business operations.
During this period, Employer J’s business operations
are not considered to be partially suspended due to
the governmental order because the governmental
order requiring enforcement of social distancing
guidelines does not have more than a nominal effect
on its operations.
Question 18: What factors should be
taken into account in determining whether
a modification required by a governmental order has more than a nominal effect
on business operations for purposes of
Q/A–17?
Answer 18: The types of modifications that are contemplated by Q/A–17
are those required by a governmental order as a condition of reopening a physical
space for business or service to the public.
Examples of these modifications include:
limiting occupancy to provide for social
distancing, requiring services to be per-
Bulletin No. 2021–11
formed only on an appointment basis (for
businesses that previously offered walk-in
service), changing the format of service
(for example, restrictions on buffet or selfserve, but not prepackaged or carry-out),
or requiring employees and customers to
wear face coverings.
The mere fact that an employer must
make a modification to business operations due to a governmental order does
not result in a partial suspension unless
the modification has more than a nominal
effect on the employer’s business operations. Whether a modification required
by a governmental order has more than a
nominal effect on the business operations
is based on the facts and circumstances.
A governmental order that results in a reduction in an employer’s ability to provide
goods or services in the normal course of
the employer’s business of not less than
10 percent will be deemed to have more
than a nominal effect on the employer’s
business operations. For example, occupancy restrictions at a restaurant with indoor dining service may result in an actual, and more than nominal, reduction of
the restaurant’s ability to service customers; however, an occupancy restriction at
a retailer with sufficient physical space to
accommodate its customers regardless of
the restriction will likely not result in an
actual, and more than nominal, reduction
of the retailer’s ability to provide goods to
its customers.
Modifications altering customer behavior (for example, mask requirements
or making store aisles one way to enforce
social distancing) or that require employees to wear masks and gloves while performing their duties will not result in more
than a nominal effect on the business operations.
Question 19: Are an employer’s operations considered to be partially suspended for purposes of the employee retention
credit if the employer is required to reduce
its operating hours by a governmental order?
Answer 19: Yes. An employer that reduces its operating hours due to a governmental order is considered to have partially suspended its operations since the
employer’s operations have been limited
by a governmental order.
Example: Employer K operates a food processing facility that normally operates 24 hours a day. A
Bulletin No. 2021–11
governmental order issued by the local health department requires all food processing businesses to deep
clean their workplaces once every 24 hours in order
to reduce the risk of COVID-19 exposure. In order
to comply with the governmental order, Employer K
reduces its daily operating hours by five hours per
day so that a deep cleaning may be conducted within
its workplace once every 24 hours. Employer K is
considered to have partially suspended its operations
due to the governmental order requiring it to reduce
its hours of operation.
Question 20: Is an employer that operates a trade or business in multiple locations and is subject to governmental
orders requiring full or partial suspension
of its operations in some jurisdictions, but
not in others, considered to have a partial
suspension of operations?
Answer 20: Yes. Employers that operate a trade or business in multiple locations and are subject to State and local
governmental orders requiring full or
partial suspension of operations in some,
but not all, jurisdictions are considered to
have a partial suspension of operations.
Employers that operate a trade or business on a national or regional basis may
be subject to governmental orders requiring closure of their locations in certain
jurisdictions, but may not be subject to a
governmental order in other jurisdictions.
To operate in a consistent manner in all jurisdictions, these employers may establish
a policy that complies with the local governmental orders, as well as the Center for
Disease Control and Prevention (CDC)
recommendations and the Department of
Homeland Security (DHS) guidance; in
this case, even though the employer may
not be subject to a governmental order to
suspend operations of its trade or business
in certain jurisdictions, and may merely
be following CDC or DHS guidelines in
those jurisdictions, the employer would
still be considered to have partially suspended operations due to the governmental orders requiring closure of its business
operations in certain jurisdictions. Therefore, the employer would be an eligible
employer with respect to all of its operations in all locations for calendar quarters
during which the employer’s operations
are partially suspended whether or not the
employer voluntarily adopts consistent
measures for its business operations in
other jurisdictions.
Example: Employer L is a national retail store
chain with operations in every state in the United
States. In some jurisdictions, Employer L is subject
931
to a governmental order to close its stores to customers, but is permitted to provide customers with curbside service to pick up items ordered online or by
phone. In these jurisdictions, Employer L determines
that it is not continuing comparable operations and
that the stores that are closed to customers are more
than a nominal portion of its business operations. In
other jurisdictions, Employer L is not subject to any
governmental order to close its stores to customers
or is considered an essential business permitting its
stores to fully remain open. Employer L establishes
a company-wide policy, in compliance with the local
governmental orders and consistent with the CDC
and DHS recommendations and guidance, requiring
the closure of all stores and operating with curbside
pick-up only, even in those jurisdictions where the
business was not subject to a governmental order.
As a result of the governmental orders requiring closure of Employer L’s stores to customers in certain
jurisdictions, Employer L has a partial suspension
of operations of its trade or business whether or not
Employer L chooses to take consistent measures for
stores in other jurisdictions. The partial suspension
results in Employer L being an eligible employer
nationwide for calendar quarters during which the
employer’s operations are partially suspended.
Question 21: If the operations of a
trade or business of one member of an
aggregated group are fully or partially
suspended due to a governmental order,
are the operations of the trade or business
of the other members of the aggregated
group considered to be fully or partially
suspended for purposes of the employee
retention credit?
Answer 21: Yes. All members of an aggregated group that are treated as a single
employer under the aggregation rules are
treated as a single employer for purposes of the employee retention credit. If a
trade or business is operated by multiple
members of an aggregated group, and if
the operations of one member of the aggregated group are suspended due to a
governmental order, then all members of
the aggregated group are considered to
have their operations partially suspended,
even if another member of the group is in
a jurisdiction that is not subject to a governmental order.
Example: Employer Group M is a restaurant
chain that operates a single trade or business through
multiple subsidiary corporations located in various jurisdictions. Employer Group M is treated as
a single employer under the aggregation rules for
purposes of the employee retention credit. Certain
members of Employer Group M’s operations are
fully suspended due to a governmental order, while
other members of Employer Group M’s operations
are not subject to a governmental order and remain
open. Because Employer Group M is treated as a single employer for purposes of the employee retention
credit, the operations of all members of Employer
Group M are treated as fully or partially suspended
March 15, 2021
due to governmental orders suspending the operations of certain of Employer Group M members.
Question 22: If an employer is subject
to a governmental order to fully or partially suspend its business operations and the
order is subsequently lifted in the middle
of a calendar quarter, is the employer an
eligible employer for the entire calendar
quarter?
Answer 22: Yes. An employer with
business operations that are fully or partially suspended due to a governmental order during a portion of a calendar quarter
is an eligible employer for the entire calendar quarter. However, only wages paid
with respect to the period during which
the employer is fully or partially suspended due to a governmental order may be
considered qualified wages.
Example: State Y issued a governmental order
for all non-essential businesses to close from March
10, 2020, through April 30, 2020, and the governmental order was not extended. Pursuant to the order,
Employer N, which operates a non-essential business
in State Y, closes from March 10 through April 30.
Employer N is a large eligible employer in the first
quarter and second quarter of 2020, but may claim
the credit only for qualified wages paid from March
13, 2020, the effective date of section 2301 of the
CARES Act, through April 30, 2020, with respect to
employees who were not providing services during
this period because of the suspension of operations
due to State Y’s governmental order.
E. Significant Decline in Gross Receipts
Question 23: How is the period during
which there is a significant decline in
gross receipts determined?
Answer 23: The period during which
there is a significant decline in gross receipts is determined by identifying the
first calendar quarter in 2020 (if any) in
which an employer’s gross receipts are
less than 50 percent of its gross receipts
for the same calendar quarter in 2019. The
period during which there is a significant
decline in gross receipts ends with the
earlier of January 1, 2021, or the calendar
quarter that follows the first calendar quarter in which the employer’s 2020 quarterly
gross receipts are greater than 80 percent
of its gross receipts for the same calendar
quarter in 2019
Example: Employer A’s gross receipts were
$100,000, $190,000, and $230,000 in the first, second, and third calendar quarters of 2020, respectively. Its gross receipts were $210,000, $230,000, and
$250,000 in the first, second, and third calendar quarters of 2019, respectively. Thus, Employer A’s 2020
first, second, and third quarter gross receipts were
March 15, 2021
approximately 48 percent, 83 percent, and 92 percent of its 2019 first, second, and third quarter gross
receipts, respectively. Accordingly, Employer A experienced a significant decline in gross receipts commencing on the first day of the first calendar quarter
of 2020 (the calendar quarter in which gross receipts
were less than 50 percent of those in the same quarter of 2019) and ending on the first day of the third
calendar quarter of 2020 (the quarter following the
first quarter in which the gross receipts were more
than 80 percent of those in the same quarter of 2019).
Thus, Employer A is an eligible employer during the
first and second calendar quarters of 2020.
Question 24: What are “gross receipts”
for an employer other than a tax-exempt
organization?
Answer 24: “Gross receipts” for purposes of the employee retention credit, for
an employer other than a tax-exempt organization, has the same meaning as when
used under section 448(c) of the Code.
Under the section 448(c) regulations,
“gross receipts” means gross receipts of
the taxable year and generally includes
total sales (net of returns and allowances) and all amounts received for services.
In addition, gross receipts include any
income from investments, and from incidental or outside sources. For example,
gross receipts include interest (including
original issue discount and tax-exempt
interest within the meaning of section
103 of the Code), dividends, rents, royalties, and annuities, regardless of whether
those amounts are derived in the ordinary
course of the taxpayer’s trade or business.
Gross receipts are generally not reduced
by cost of goods sold, but are generally
reduced by the taxpayer’s adjusted basis
in certain property used in a trade or business or capital assets sold. Gross receipts
do not include the repayment of a loan, or
amounts received with respect to sales tax
if the tax is legally imposed on the purchaser of the good or service, and the taxpayer merely collects and remits the sales
tax to the taxing authority.
Question 25: What are “gross receipts”
for a tax-exempt employer?
Answer 25: “Gross receipts” for purposes of the employee retention credit,
for a tax-exempt organization, has the
same meaning as under section 6033 of
the Code. Under the section 6033 regulations, “gross receipts” means the gross
amount received by the organization from
all sources without reduction for any costs
or expenses including, for example, cost
of goods or assets sold, cost of opera-
932
tions, or expenses of earning, raising, or
collecting such amounts. Thus, gross receipts includes, but is not limited to, the
gross amount received as contributions,
gifts, grants, and similar amounts without reduction for the expenses of raising
and collecting such amounts, the gross
amount received as dues or assessments
from members or affiliated organizations
without reduction for expenses attributable to the receipt of such amounts, gross
sales or receipts from business activities
(including business activities unrelated
to the purpose for which the organization
qualifies for exemption), the gross amount
received from the sale of assets without
reduction for cost or other basis and expenses of sale, and the gross amount received as investment income, such as interest, dividends, rents, and royalties.
To determine whether there has been
a significant decline in gross receipts, a
tax-exempt employer computes its gross
receipts received from all of its operations
during the calendar quarter and compares
those gross receipts to the gross receipts
received for the same calendar quarter in
2019.
Question 26: For members of an aggregated group, is a significant decline in
gross receipts determined based on the entire group?
Answer 26: Yes. All entities that are
treated as a single employer under the aggregation rules are treated as a single employer for purposes of determining whether the employer experienced a significant
decline in gross receipts.
To be an eligible employer on the basis
of a significant decline of gross receipts,
the employer must take into account the
gross receipts of all members of the aggregated group. If the aggregated group
does not experience a significant decline
in gross receipts, then no member of the
group may claim the employee retention
credit on that basis.
Example: Employer B and Employer C are
members of a section 52(a) controlled group of corporations and are treated as a single employer under the aggregation rules. Because Employer B and
Employer C are treated as a single employer under
the aggregation rules, they must be treated as a single employer for purposes of determining whether
there has been a significant decline in gross receipts.
Neither Employer B nor Employer C is subject to a
governmental order suspending business operations.
Employer B has gross receipts of $1,000,000 in the
second quarter of 2019 and $400,000 in the second
Bulletin No. 2021–11
quarter of 2020. Employer C has gross receipts of
$1,000,000 in second quarter of 2019 and $750,000
in second quarter of 2020. Although Employer B’s
gross receipts in the second quarter of 2020 were
40 percent of its 2019 second quarter gross receipts,
neither Employer B nor Employer C can claim the
employee retention credit due to a significant decline
in gross receipts. This is because Employers B and
C are treated as a single employer for purposes of
the employee retention credit and had combined
gross receipts of $2,000,000 in the second quarter of
2019 and $1,150,000 in the second quarter of 2020.
Their combined gross receipts for the second quarter
of 2020 would have had to be less than $1,000,000
(50 percent of $2,000,000) for Employers B and C
to have experienced a significant decline in gross receipts for the second quarter of 2020.
Question 27: How does an employer
that started its business in 2019 determine
whether it experienced a significant decline in gross receipts for purposes of the
employee retention credit?
Answer 27: An employer that started its
business in the first quarter of 2019 should
use the gross receipts for the applicable
quarter of 2019, as described below, for
comparison to the gross receipts for the
same quarter in 2020 to determine whether it experienced a significant decline in
gross receipts in any quarter of 2020.
An employer that started its business
in the second quarter of 2019 should use
that quarter as the base period to determine whether it experienced a significant
decline in gross receipts for the first two
quarters in 2020 and should use the third
and fourth quarters of 2019 for comparison to the third and fourth quarters of
2020, respectively, to determine whether it experienced a significant decline in
gross receipts for those quarters.
An employer that started its business
in the third quarter of 2019 should use
that quarter as the base period to determine whether it experienced a significant decline in gross receipts for the first
three quarters in 2020 and should use the
fourth quarter of 2019 for comparison to
the fourth quarter of 2020 to determine
whether it experienced a significant decline in gross receipts for that quarter.
An employer that started its business
in the fourth quarter of 2019 should use
that quarter as the base period to determine whether it experienced a significant
decline in gross receipts for any quarter in
2020.
If an employer commenced business in
the middle of a quarter in 2019, the employer should estimate the gross receipts
Bulletin No. 2021–11
it would have had for the entire quarter
based on the gross receipts for the portion of the quarter that the business was
in operation. To calculate this amount, the
employer may use any reasonable method,
including extrapolating the gross receipts
for the quarter based on the gross receipts
for the number of days its business was
operating during the quarter.
Question 28: How does an employer
that acquires a trade or business during the
2020 calendar year determine if the employer experienced a significant decline in
gross receipts?
Answer 28: For purposes of the employee retention credit, to determine
whether an employer experiences a significant decline in gross receipts, an employer that acquires (in an asset purchase,
stock purchase, or any other form of acquisition) a trade or business during 2020
(an acquired business) is required to include the gross receipts from the acquired
business in its gross receipts computation
for each calendar quarter that it owns and
operates the acquired business. Solely for
purposes of the employee retention credit, when an employer compares its gross
receipts for a 2020 calendar quarter when
it owns an acquired business to its gross
receipts for the same calendar quarter in
2019, the employer may, to the extent the
information is available, include the gross
receipts of the acquired business in its
gross receipts for the 2019 calendar quarter. Under this safe harbor approach, the
employer may include these gross receipts
regardless of the fact that the employer did
not own the acquired business during that
2019 calendar quarter.
An employer that acquires a trade or
business in the middle of a calendar quarter in 2020 and that chooses to use this
safe harbor approach must estimate the
gross receipts it would have had from that
acquired business for the entire quarter
based on the gross receipts for the portion
of the quarter that it owned and operated
the acquired business. However, an employer that chooses not to use this safe
harbor approach is required to include
only the gross receipts from the acquired
business for the portion of the quarter that
it owned and operated the acquired business.
Example: Employer D acquired all of the assets
of a trade or business in a taxable transaction on Jan-
933
uary 1, 2020. The gross receipts of the acquired business were $50,000 for the quarter beginning January
1, 2020, and ending March 31, 2020, and $200,000
for the quarter beginning January 1, 2019, and ending
March 31, 2019. Employer D has access to the books
and records from the prior owner of the acquired
trade or business and can determine the amount of
gross receipts attributable to the trade or business for
the quarter beginning January 1, 2019, and ending
March 31, 2019. For purposes of the employee retention credit, Employer D must include $50,000 in
its gross receipts computation for the quarter beginning January 1, 2020, and ending March 31, 2020
(because Employer D actually owned the trade or
business) and may include $200,000 in its gross receipts computation for the quarter beginning January
1, 2019, and ending March 31, 2019.
F. Maximum Amount of Employer’s
Employee Retention Credit
Question 29: How is the maximum
amount of the employee retention credit available to eligible employers determined?
Answer 29: The credit equals 50 percent of qualified wages (including allocable qualified health plan expenses) that
an eligible employer pays in a calendar
quarter. The maximum amount of qualified wages (including allocable qualified
health plan expenses) taken into account
with respect to each employee for all calendar quarters in 2020 is $10,000, which
means that the maximum credit for qualified wages (including allocable qualified
health plan expenses) paid to any employee in 2020 is $5,000.
If an employee is employed by two or
more entities treated as a single employer under the aggregation rules, the maximum amount of qualified wages for all
calendar quarters that may be taken into
account with respect to that employee is
$10,000 in the aggregate; thus, an aggregated group treated as a single employer
may not claim more than the maximum
credit of $5,000 with respect to any one
individual employed by the members of
the aggregated group. With respect to such
an employee, the amount of the employee retention credit that may be claimed
by any member of an aggregated group
is based on the member’s proportionate
share of qualified wages giving rise to the
credit per the return period for which the
credit is claimed.
Example 1: Employer A is an eligible employer
and pays $10,000 in qualified wages to Employee B
in the second quarter of 2020. The employee reten-
March 15, 2021
tion credit available to Employer A for the qualified
wages paid to Employee B is $5,000.
Example 2: Employer C is an eligible employer
and pays $8,000 in qualified wages to Employee D
in the second quarter 2020 and $8,000 in qualified
wages in the third quarter 2020. The credit available
to Employer C for the qualified wages paid to Employee D is equal to $4,000 in the second quarter and
$1,000 in the third quarter due to the overall limit
of 50 percent of $10,000 of qualified wages per employee for all calendar quarters.
Example 3: Employer E and Employer F are
members of an aggregated group treated as a single
employer and together are an eligible employer. Employee G is employed by both Employer E and Employer F. Employee G received $10,000 in qualified
wages from each employer during the second quarter
of 2020, for a total of $20,000. Because Employers E
and F are treated as a single employer under the aggregation rules, the total amount of qualified wages
that may be taken into account for determining the
employee retention credit with respect to Employee G is limited to $10,000, and the maximum credit
available for qualified wages paid to Employee G is
$5,000. Employers E and F can claim their proportionate share of the $5,000 credit. Since Employers E
and F paid equal amounts of qualified wages to Employee G, they can each claim $2,500. Additionally,
because Employers E and F each paid the maximum
amount of qualified wages ($10,000) to Employee G
during the second quarter, Employers E and F are
not entitled to the employee retention credit for wages paid to Employee G in any remaining quarter in
2020.
G. Qualified Wages
Question 30: What are “qualified wages”?
Answer 30: Qualified wages are generally limited to wages (as defined in section 3121(a) of the Code) and compensation (as defined in section 3231(e) of the
Code), both determined without regard to
the social security wage base, paid by an
eligible employer to some or all of its employees after March 12, 2020, and before
January 1, 2021.15 Section 2301(c)(5)(B)
of the CARES Act provides that “wages”
include amounts paid by an eligible employer to provide and maintain a group
health plan (as defined in section 5000(b)
(1) of the Code), but only to the extent that
the amounts are excluded from the gross
income of employees by reason of section
106(a) of the Code. Amounts treated as
wages under section 2301(c)(5)(B) of the
CARES Act are treated as paid with respect to any employee (and with respect to
15
any period) to the extent the amounts are
properly allocable to the employee (and to
the period), and, except as otherwise provided by the Secretary, the allocation will
be treated as proper if made on the basis of
being pro rata among periods of coverage.
See Q/As 41 and 42. Qualified wages do
not include qualified sick leave wages and
qualified family leave wages taken into
account under sections 7001 and 7003 of
the FFCRA.
The specific circumstances in which
wage payments by an eligible employer
will be considered qualified wages depend, in part, on the average number of
full-time employees the eligible employer
employed during 2019. For a large eligible employer (more than 100 employees),
qualified wages are the wages paid to an
employee for time that the employee is not
providing services due to either (1) a full
or partial suspension of the employer’s
business operations due to a governmental
order, or (2) the business experiencing a
significant decline in gross receipts. For a
small eligible employer (100 or fewer employees), qualified wages are the wages
paid with respect to an employee during
any period in the calendar quarter in
which the business operations are fully or
partially suspended due to a governmental order or during any calendar quarter in
which the business is experiencing a significant decline in gross receipts.
Example: Employer A is a small eligible employer that has had a partial suspension of its business
operations due to a governmental order. Employer
A offers its employees various benefits that provide
for pre-tax salary reduction contributions, including
a qualified section 401(k) plan, a fully-insured group
health plan, a dependent care assistance program satisfying the requirements of section 129 of the Code,
and qualified transportation benefits satisfying the
requirements of section 132(f) of the Code. Employer A also makes matching and nonelective contributions to the qualified section 401(k) plan and pays the
portion of the cost of maintaining the group health
plan remaining after the employees’ share. None of
these amounts are wages taken into account for purposes of the credits claimed under sections 7001 and
7003 of the FFCRA.
Employer A may treat as qualified wages the
amounts its employees contribute as pre-tax salary reduction contributions to the qualified section
401(k) plan with respect to the period of the partial
suspension of operations because those amounts are
wages within the meaning of section 3121(a).
Employer A may also treat all amounts
paid toward maintaining the group health
plan (including any employee pre-tax salary reduction contribution) with respect to
the period of the partial suspension of operations as qualified health plan expenses
and thus as qualified wages.
Employer A may not treat as qualified
wages the amounts Employer A contributes as matching or nonelective contributions to the qualified section 401(k) plan,
nor may it treat as qualified wages any employee pre-tax salary reduction contributions toward the dependent care assistance
program or qualified transportation benefits. These amounts do not constitute wages within the meaning of section 3121(a)
and therefore are not qualified wages for
purposes of the employee retention credit.
Question 31: How does an eligible employer identify the average number of fulltime employees employed during 2019?
Answer 31: The term “full-time employee” means an employee who, with respect
to any calendar month in 2019, had an average of at least 30 hours of service per week
or 130 hours of service in the month (130
hours of service in a month is treated as
the monthly equivalent of at least 30 hours
of service per week), as determined in accordance with section 4980H of the Code.
An employer that operated its business for
the entire 2019 calendar year determines
the number of its full-time employees by
taking the sum of the number of full-time
employees in each calendar month in 2019
and dividing that number by 12.
An employer that started its business
operations during 2019 determines the
number of its full-time employees by
taking the sum of the number of full-time
employees in each full calendar month
in 2019 in which the employer operated
its business and dividing that sum by the
number of full calendar months in 2019
in which the employer operated its business.
An employer that started its business
operations during 2020 determines the
number of its full-time employees by taking the sum of the number of full-time
employees in each full calendar month in
2020 in which the employer operated its
As noted above, this notice does not provide guidance with respect to the extension of the credit for qualified wages paid after December 31, 2020, and before July 1, 2021.
March 15, 2021
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Bulletin No. 2021–11
business and dividing by that number of
months, consistent with the approach described above for employers that began
business operations during 2019.
Question 32: For members of an aggregated group, is the average number of
full-time employees determined based on
the entire group?
Answer 32: Yes. All entities that are
treated as a single employer under the
aggregation rules are treated as a single
employer for purposes of determining the
employer’s average number of employees.
Example: Employers B and C each averaged 75
full-time employees in 2019. Employers B and C are
treated as a single employer under the aggregation
rules and therefore are treated as a single employer
for purposes of determining the employee retention
credit; they are an eligible employer. Employers B
and C together averaged 150 full-time employees
in 2019. Because Employers B and C are a large
eligible employer, each employer is eligible for the
employee retention credit only for wages paid to an
employee that is not providing services due to either
(1) a full or partial suspension of operations by governmental order, or (2) a significant decline in gross
receipts.
Question 33: What wages may a small
eligible employer treat as qualified wages?
Answer 33: Small eligible employers
may treat all wages (other than any wages taken into account under sections 7001
and 7003 of the FFCRA) paid after March
12, 2020, and before January 1, 2021, with
respect to their employees during any period in the calendar quarter in which the
employer’s business operations are fully
or partially suspended due to a governmental order or during a calendar quarter
in which the employer experiences a significant decline in gross receipts as qualified wages. Only $10,000 of qualified
wages may be taken into account for the
employee retention credit per employee
for all calendar quarters.
Question 34: What wages may a large
eligible employer treat as qualified wages?
Answer 34: Large eligible employers
may treat wages (other than any wages
taken into account under sections 7001
and 7003 of the FFCRA) paid to employees after March 12, 2020, and before January 1, 2021, only for the time they are not
providing services during the period in the
calendar quarter in which the employer’s
business operations are fully or partially
suspended due to a governmental order
or during a calendar quarter in which the
employer experiences a significant decline
Bulletin No. 2021–11
in gross receipts as qualified wages. Large
eligible employers may not treat wages as
qualified wages if they were paid to employees for the time that they provide services to the employer. Also, only $10,000
of qualified wages may be taken into account for the employee retention credit
per employee for all calendar quarters.
Example 1: Employer D, a large eligible employer operating a local chain of full service restaurants
in State X, is subject to a governmental order for
restaurants to discontinue sit-down service to customers inside the restaurant, but may continue food
or beverage sales to the public on a carry-out, drivethrough, or delivery basis. Employer D continues
to pay wages to kitchen staff and certain waitstaff
needed to facilitate fulfillment of carry-out orders.
Wages paid to these employees for the time that they
provide carry-out service are not qualified wages.
Example 2: Employer E is a large eligible employer and was forced to suspend operations at the
end of the first calendar quarter in 2020. Its employees performed services during the first part of the
calendar quarter but then stopped due to the suspension of operations; however, Employer E continued
to pay the employees’ normal wages for the entire
quarter, including the period during which they were
not providing services. None of the wages were taken into account under sections 7001 and 7003 of the
FFCRA. The wages paid during the period when
employees were not providing services are qualified
wages.
Question 35: May a large eligible employer claim an employee retention credit
for an increase in the amount of wages it
paid its employees during the time that
employees are not providing services?
Answer 35: No. For large eligible employers, qualified wages paid to an employee may not exceed what the employee would have been paid for working an
equivalent duration during the 30 days immediately preceding the commencement
of the full or partial suspension of the
operation of the trade or business or the
first day of the calendar quarter in which
the employer experienced a significant decline in gross receipts. For a variable hour
employee, the amount paid for working
an equivalent duration during that 30-day
period may be determined using any reasonable method. The method(s) that the
Department of Labor has prescribed to
determine the amount to pay an employee
with an irregular schedule who is eligible for paid sick leave under the FFCRA
would be considered reasonable for this
purpose.
Example: Employer F, a large eligible employer
operating a grocery store chain, is subject to a governmental order limiting store hours. In response,
Employer F has reduced the hours its employees
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work, but increases the rate of pay for those employees who continue to provide services by $2 an
hour. Only the amounts paid to employees for time
they are not providing services, and at the rate of pay
in effect prior to the increase, would be considered
qualified wages.
Question 36: May a large eligible employer treat the wages paid to hourly and
non-exempt salaried employees for hours
for which they are not providing services
as qualified wages for purposes of the employee retention credit?
Answer 36: Yes, assuming the wages
otherwise satisfy the requirements to be
qualified wages. For a large eligible employer, wages paid to hourly and non-exempt salaried employees for hours that
the employees were not providing services may be considered qualified wages
for purposes of the employee retention
credit. For an employee who does not
have a fixed schedule of work, the hours
for which the employee is not providing
services may be determined using any reasonable method. The method that the large
eligible employer would use to determine
the employee’s entitlement to leave under
the Family and Medical Leave Act would
be a reasonable method for this purpose.
Similarly, the method(s) that the Department of Labor has prescribed to determine
the number of hours for which an employee with an irregular schedule is eligible for
paid sick leave under the FFCRA would
be considered reasonable for this purpose.
It is not reasonable for the employer to
treat an employee’s hours as having been
reduced based on an assessment of the
employee’s productivity levels during the
hours the employee is working.
Wages paid by a large eligible employer to its employees for hours for which
they provided services are not considered
qualified wages for purposes of the employee retention credit.
Example 1: Employer G, a large eligible employer operating a manufacturing business, has several
locations the operations of which are fully suspended
during the second quarter of 2020 due to a governmental order. Employer G continues to pay hourly
employees who are not providing services at the
closed locations 50 percent of their normal hourly
wage rates. Employer G also reduced headquarters’
administrative staff hours by 40 percent, but continues to pay them at 100 percent of their normal hourly
wage rates. Employer G does not take the wages into
account under sections 7001 and 7003 of the FFCRA. For employees who are not providing services
due to the closure of their location, but are receiving
50 percent of their normal hourly wage rates, Employer G may treat the wages paid as qualified wages
March 15, 2021
for purposes of the employee retention credit. For the
administrative staff whose hours were reduced by 40
percent, but who are paid for 100 percent of the normal wage rate, Employer G may treat the 40 percent
of wages paid for time that these employees are not
providing services as qualified wages for purposes
of the employee retention credit. The 60 percent of
wages that Employer G pays the administrative staff
for hours during which the employees are actually
providing services is not considered qualified wages
for purposes of the employee retention credit.
Example 2: Employer H is a large eligible employer in the business of staging homes that are for
sale. Employer H’s non-exempt salaried employees
cannot perform their usual services of delivering
and installing furniture to be used in staging houses because open houses are prohibited in its service
area during the second quarter of 2020. However,
the employees are required to provide Employer H
with periodic status updates about furniture that has
been leased out and other administrative matters.
Employer H continues to pay wages to employees
as if they continued to work their typical work hours
even though the employees cannot provide their normal services. Using a reasonable method, Employer
H has determined that its employees are working 20
percent of their typical work hours. Employer H does
not take the wages into account under sections 7001
and 7003 of the FFCRA. Employer H may treat 80
percent of the wages paid as qualified wages for purposes of the employee retention credit.
Question 37: May a large eligible employer treat wages paid to exempt salaried
employees for time for which they are not
providing services as qualified wages for
purposes of the employee retention credit?
Answer 37: Yes, provided the wages
paid to the exempt salaried employees
are for the time that they are not providing services due to either a full or partial
suspension of operations (due to a governmental order) or a significant decline in
gross receipts. An eligible employer may
use any reasonable method to determine
the number of hours that a salaried employee is not providing services, but for
which the employee receives wages either
at the employee’s normal wage rate or at
a reduced wage rate. Reasonable methods
include the method (or methods) the employer uses to measure exempt employees’ entitlement to leave on an intermittent
or reduced leave schedule under the Family and Medical Leave Act, or the method
the employer uses to measure exempt employees’ entitlement to and usage of paid
leave under the employer’s usual practices. It is not reasonable for the employer to
treat an employee’s hours as having been
reduced based on an assessment of the
employee’s productivity levels during the
hours the employee is working.
March 15, 2021
Example 1: Employer I, a large eligible employer
operating a fitness club business, closed all of its locations in City B due to a governmental order issued
by City B’s mayor. Employer I continues to pay its
exempt managerial employees their regular salaries.
While the clubs are closed and there is not sufficient
administrative work to occupy the managerial employees full-time, they continue to perform some accounting and similar administrative functions. Employer I has determined, based on the time records
maintained by employees, that they are providing
services for 10 percent of their typical work hours.
Employer I does not take the wages into account under sections 7001 and 7003 of the FFCRA. In this
case, 90 percent of wages paid to these employees
during the period the clubs were closed are qualified
wages.
Example 2: Employer J, a large eligible employer operating a consulting firm, closed its offices due
to various governmental orders and required all employees to telework. Although Employer J believes
that some of its employees may not be as productive while working remotely, employees are working
their normal business hours. Because employees’
work hours have not changed, no portion of the wages paid to the employees by Employer J are qualified
wages.
Question 38: May an eligible employer
treat wages paid to employees pursuant to
a pre-existing vacation, sick and other personal leave policy as qualified wages for
purposes of the employee retention credit?
Answer 38: A large eligible employer
may not treat as qualified wages amounts
paid to employees for paid time off for vacations, holidays, sick days and other days
off. These wages are paid pursuant to existing leave policies that represent benefits
accrued during a prior period in which the
employees provided services and are not
wages paid for time in which the employees are not providing services.
However, a small eligible employer
may treat all wages paid with respect to
employees during the period of the full or
partial suspension of operations or a calendar quarter in which it has a significant
decline in gross receipts, even if under a
pre-existing vacation, sick and other leave
policy, as qualified wages for purposes of
the employee retention credit, assuming
the wages are not taken into account under
sections 7001 and 7003 of the FFCRA.
Question 39: May an eligible employer
treat payments made to former employees
who have terminated employment as qualified wages for purposes of the employee
retention credit?
Answer 39: Payments, including severance payments or other post-termination
payments, made to a former employee
936
following termination of employment are
not considered qualified wages for purposes of the employee retention credit.
Payments may be considered qualified
wages only if the payments are made to
an employee while employed by the eligible employer. Payments made in connection with a former employee’s termination
of employment are not qualified wages
because they are payments for the past
employment relationship and thus are not
payments made with respect to an employee during the time for which the employee
retention credit may be claimed. Whether
an employee has terminated employment
is based on all of the facts and circumstances, including whether the employer
has treated the employment relationship
as terminated for purposes other than the
continuation of wage payments.
H. Allocable Qualified Health Plan
Expenses
Question 40: Do qualified health plan
expenses include both the portion of the
cost paid by the eligible employer and the
portion of the cost paid by the employee?
Answer 40: Yes. However, amounts
that the employee paid for with after-tax
contributions are not considered qualified health plan expenses. The amount of
qualified health plan expenses taken into
account in determining the amount of
qualified wages generally includes both
the portion of the cost paid by the eligible employer and the portion of the cost
paid by the employee with pre-tax salary
reduction contributions.
Question 41: May a small eligible employer treat its health plan expenses as
qualified wages for purposes of the employee retention credit?
Answer 41: A small eligible employer
may treat its health plan expenses paid or
incurred, after March 12, 2020, and before January 1, 2021, with respect to any
employee during any period in a calendar
quarter in which the employer’s business
operations are fully or partially suspended due to a governmental order or during
a calendar quarter in which the employer
experiences a significant decline in gross
receipts as qualified wages, although only
$10,000 per employee for all calendar
quarters can be taken into account for the
employee retention credit. Small eligible
Bulletin No. 2021–11
employers may treat health plan expenses
allocable to the applicable periods as qualified wages even if the employees are not
working and the eligible employer does
not pay the employees any wages for the
time they are not working.
Example 1: Employer A is a small eligible employer subject to a governmental order that partially suspends the operation of its trade or business.
In response to the governmental order, Employer
A reduces all employees’ hours by 50 percent. It
pays wages to the employees only for the time the
employees are providing services, but Employer A
continues to provide the employees with full health
care coverage. Employer A’s health plan expenses allocable to wages paid during the period its operations
were partially suspended may be treated as qualified
wages for purposes of the employee retention credit.
Example 2: Employer B is a small eligible employer subject to a governmental order that suspends
the operation of its trade or business. In response to
the governmental order, Employer B lays off or furloughs all of its employees (but does not treat these
employees as terminated for employment tax purposes). It does not pay wages to its employees for the
time they are laid off or furloughed and not working,
but it continues the employees’ health care coverage.
Employer B’s health plan expenses allocable to the
period its operations were partially suspended may
be treated as qualified wages for purposes of the employee retention credit.
Question 42: May a large eligible employer treat its health plan expenses as
qualified wages for purposes of the employee retention credit if the expenses are
allocable to the time that employees were
not providing services?
Answer 42: A large eligible employer
may treat as qualified wages health plan
expenses paid or incurred, after March 12,
2020, and before January 1, 2021, allocable to the time that the employees are not
providing services during any period in a
calendar quarter in which the employer’s
business operations are fully or partially
suspended due to a governmental order or
a calendar quarter in which the employer
experiences a significant decline in gross
receipts, although only $10,000 per employee for all calendar quarters can be
taken into account for the employee retention credit. However, a large eligible
employer may not treat as qualified wages
health plan expenses allocable to the time
the employees are providing services.
Example 1: Employer C is a large eligible employer subject to a governmental order that partially
suspends the operation of its trade or business. In
response to the governmental order, Employer C reduces all employees’ hours by 50 percent and pays
wages to its employees only for the time that the employees are providing services, but Employer C con-
Bulletin No. 2021–11
tinues to provide the employees with full health care
coverage. The 50 percent of Employer C’s health
plan expenses allocable to the time that employees
are not providing services may be treated as qualified
wages. Employer C may not treat the other 50 percent of health plan expenses allocable to the time the
employees are providing services as qualified wages.
Example 2: Employer D is a large eligible employer subject to a governmental order that partially suspends the operations of its trade or business.
In response to the governmental order, Employer D
reduces its employees’ hours by 50 percent, but it reduces its employees’ wages by only 40 percent, so
that the employees receive 60 percent of their wages for 50 percent of their normal hours. Employer
D continues to cover 100 percent of the employees’
health plan expenses. Employer D may treat as qualified wages: (i) the 10 percent of the wages that it
pays employees for time the employees are not providing services, plus (ii) 50 percent of the health plan
expenses, because these health plan expenses are
allocable to the time that employees were not providing services.
Example 3: Employer E is a large eligible employer subject to a governmental order that fully suspends the operations of its trade or business. Employer E lays off or furloughs its employees (but does not
treat these employees as terminated for employment
tax purposes) and does not pay wages to the employees, but does continue to cover 100 percent of the
employees’ health plan expenses. Employer E may
treat as qualified wages the health plan expenses that
are allocable to the time that the employees are not
providing services.
Question 43: For an eligible employer
that sponsors more than one plan for its
employees (for example, both a group
health plan and a health flexible spending
arrangement (health FSA)), or more than
one plan covering different employees,
how are the qualified health plan expenses
for each employee determined?
Answer 43: The qualified health plan
expenses are determined separately for
each plan. For each plan, those expenses
are allocated to the employees who participate in that plan. In the case of an employee who participates in more than one
plan, the allocated expenses of each plan
in which the employee participates are aggregated for that employee.
Question 44: For an eligible employer
that sponsors a fully-insured group health
plan, how are the qualified health plan expenses of that plan allocated on a pro rata
basis?
Answer 44: An eligible employer who
sponsors a fully-insured group health plan
may use any reasonable method to determine and allocate the plan expenses,
including (1) the COBRA applicable premium for the employee typically available
from the insurer, (2) one average premium
937
rate for all employees, or (3) a substantially similar method that takes into account
the average premium rate determined separately for employees with self-only and
other than self-only coverage.
If an eligible employer chooses to use
one average premium rate for all employees, the allocable amount for each day an
employee covered by the insured group
health plan is entitled to qualified wages
could be determined using the following
steps:
(1) The eligible employer’s overall annual premium for the employees covered by the policy is divided by the
number of employees covered by the
policy to determine the average annual premium per employee.
(2) The average annual premium per
employee is divided by the average
number of work days during the year
for all covered employees (treating
days of paid leave as a work day and
a work day as including any day on
which work is performed) to determine the average daily premium per
employee. For example, a full-year
employee working five days per week
may be treated as working 52 weeks
x 5 days or 260 days. Calculations
for part-time and seasonal employees who participate in the plan should
be adjusted as appropriate. Eligible
employers may use any reasonable
method for calculating work days for
part-time and seasonal employees.
(3) The resulting premium should be adjusted to reflect any portion that employees contribute after-tax.
(4) The resulting amount is the amount
allocated to each day of qualified
wages.
Example: Employer F sponsors an insured group
health plan that covers 400 employees, some with
self-only coverage and some with family coverage.
Each employee is expected to have 260 work days
a year (i.e., five days a week for 52 weeks). The
employees contribute a portion of their premium
by pre-tax salary reduction, with different amounts
for self-only and family coverage. The total annual
premium for the 400 employees is $5.2 million (this
includes both the amount paid by the eligible employer and the amounts paid by employees through
salary reduction).
For an eligible employer using one
average premium rate for all employees,
the average annual premium rate is $5.2
million divided by 400, or $13,000. For
each employee expected to have 260 work
March 15, 2021
days a year, this results in a daily average
premium rate equal to $13,000 divided
by 260, or $50. This $50 is the amount of
qualified health plan expenses allocated to
each day of qualified wages per employee.
Question 45: For an eligible employer
that sponsors a self-insured group health
plan, how are the qualified health plan expenses of that plan allocated on a pro rata
basis?
Answer 45: An eligible employer who
sponsors a self-insured group health plan
may use any reasonable method to determine and allocate the qualified health plan
expenses, including (1) the COBRA applicable premium for the employee typically
available from the administrator, or (2)
any reasonable actuarial method to determine the estimated annual expenses of the
plan.
If the eligible employer uses a reasonable actuarial method to determine the
estimated annual expenses of the plan,
then rules similar to the rules for insured
plans are used to determine the amount of
qualified health plan expenses allocated
to an employee. That is, the estimated annual expense is divided by the number of
employees covered by the plan, and that
amount is divided by the average number of work days during the year for all
covered employees (treating days of paid
leave as work days and any day on which
an employee performs any work as a work
day). The resulting premium should then
be adjusted to reflect any portion that employees contribute after-tax. The resulting
amount is the amount allocated to each
day of qualified wages.
Question 46: For an eligible employer
who contributes to a health savings account (HSA), or Archer Medical Saving
Account (Archer MSA) and sponsors a
high deductible health plan (HDHP), are
contributions to the HSA or Archer MSA
included in the qualified health plan expenses?
Answer 46: The amount of qualified
health plan expenses does not include an
eligible employer’s contributions to an
HSA or Archer MSA. An eligible employer who sponsors an HDHP should calculate the amount of qualified health plan
expenses in the same manner as an insured
group health plan, or a self-insured plan,
as applicable.
Question 47: For an eligible employer who sponsors a health reimbursement
arrangement (HRA), a health flexible
spending arrangement (health FSA), or
a qualified small employer health reimbursement arrangement (QSEHRA), are
contributions to the HRA, health FSA, or
QSEHRA included in the qualified health
plan expenses?
Answer 47: The amount of qualified
health plan expenses may include contributions to an HRA (including an individual coverage HRA), or a health FSA, but
not contributions to a QSEHRA. To allocate contributions to an HRA or a health
FSA, eligible employers should use the
amount of contributions made by or on
behalf of the particular employee.
Question 48: Are health plan expenses
that are allocable to qualified sick leave
wages and qualified family leave wages
for purposes of credits available under
sections 7001 and 7003 of the FFCRA
excluded from the definition of qualified
wages for purposes of the employee retention credit?
Answer 48: Yes. Wages for which an
eligible employer may claim the employee retention credit do not include the
qualified sick leave wages and qualified
family leave wages for which it claims
credits under sections 7001 and 7003 of
the FFCRA. This exclusion also applies to
the health plan expenses that are allocable to these qualified sick leave wages and
qualified family leave wages paid under
sections 7001 and 7003 the FFCRA.
I. Interaction with Paycheck Protection
Program (PPP) Loans
Question 49: May an employer that received a PPP loan be eligible for the employee retention credit?
Answer 49: Yes. An employer that received a PPP loan may claim the employee retention credit for any qualified wages
paid to employees if the employer is an
eligible employer that meets the requirements for the credit.16 However, qualified
wages for which the employer claims the
employee retention credit are excluded
from payroll costs paid during the covered
period (payroll costs) that qualify for forgiveness under the PPP. See section 7A(a)
(12) of the Small Business Act, as amended by section 206(c)(1) of the Relief Act.
Section 2301(g)(1) of the CARES Act,
as amended by the Relief Act, permits an
eligible employer to elect not to take into
account certain qualified wages for purposes of the employee retention credit.
An eligible employer generally makes the
election by not claiming the employee retention credit for those qualified wages on
its federal employment tax return. However, an eligible employer that received
a PPP loan is deemed to have made the
election under section 2301(g)(1) of the
CARES Act for those qualified wages included in the amount reported as payroll
costs on a Paycheck Protection Program
Loan Forgiveness Application (PPP Loan
Forgiveness Application). Specifically,
the amount for which the eligible employer is deemed to have made the election is
the amount of qualified wages included
in the payroll costs reported on the PPP
Loan Forgiveness Application up to (but
not exceeding) the minimum amount of
payroll costs, together with any other eligible expenses reported on the PPP Loan
Forgiveness Application, sufficient to
support the amount of the PPP loan that
is forgiven. The employee retention credit
does not apply to the qualified wages for
which the election or deemed election is
made. An eligible employer is not deemed
to have made an election for any qualified wages paid by the eligible employer
that are not included in the payroll costs
reported on the PPP Loan Forgiveness Application. Notwithstanding a deemed election, if an eligible employer reports any
qualified wages as payroll costs on a PPP
Loan Forgiveness Application to obtain
forgiveness of the PPP loan amount, but
the loan amount is not forgiven by reason
of a decision under section 7A(g) of the
Small Business Act, those qualified wages
may subsequently be treated as subject to
section 2301 of the CARES Act and may
be taken into account for purposes of the
Section 206(c)(2)(B)(i) of the Relief Act struck section 2301(j) of the CARES Act, effective retroactive to March 27, 2020, the date of enactment of the CARES Act. As originally enacted,
section 2301(j) of the CARES Act provided that an employer that received a PPP loan would not be eligible for the employee retention credit. With the elimination of this provision, an eligible
employer is no longer prohibited from both claiming the employee retention credit and receiving a PPP loan.
16
March 15, 2021
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Bulletin No. 2021–11
employee retention credit. If an eligible
employer obtains forgiveness of only a
portion of the PPP loan amount, then the
employer is deemed to have made an election for the minimum amount of qualified
wages included in the payroll costs reported on the PPP Loan Forgiveness Application necessary to obtain the forgiveness of
that amount of the PPP loan.
Example 1: Employer A received a PPP loan of
$100,000. Employer A is an eligible employer and
paid $100,000 in qualified wages that would qualify
for the employee retention credit during the second
and third quarters of 2020. In order to receive forgiveness of the PPP loan in its entirety, Employer
A was required, under the Small Business Administration (SBA) rules, to report a total of $100,000
of payroll costs and other eligible expenses (and a
minimum of $60,000 of payroll costs). Employer A
submitted a PPP Loan Forgiveness Application and
reported the $100,000 of qualified wages as payroll
costs in support of forgiveness of the entire PPP loan.
Employer A received a decision under section 7A(g)
of the Small Business Act in the first quarter of 2021
for forgiveness of the entire PPP loan amount of
$100,000.
Employer A is deemed to have made an election
not to take into account $100,000 of the qualified
wages for purposes of the employee retention credit,
which was the amount of qualified wages included
in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the
minimum amount of payroll costs, together with any
other eligible expenses reported on the PPP Loan
Forgiveness Application, sufficient to support the
amount of the PPP loan that is forgiven. It may not
treat that amount as qualified wages for purposes of
the employee retention credit.
Example 2: Employer B received a PPP loan of
$200,000. Employer B is an eligible employer and
paid $250,000 of qualified wages that would qualify
for the employee retention credit during the second
and third quarters of 2020. In order to receive forgiveness of the PPP loan in its entirety, Employer B
was required, under the SBA rules, to report a total of
$200,000 of payroll costs and other eligible expenses
(and a minimum of $120,000 of payroll costs). Employer B submitted a PPP Loan Forgiveness Application and reported the $250,000 of qualified wages
as payroll costs in support of forgiveness of the entire PPP loan. Employer B received a decision under
section 7A(g) of the Small Business Act in the first
quarter of 2021 for forgiveness of the entire PPP loan
amount of $200,000.
Employer B is deemed to have made an election
not to take into account $200,000 of the qualified
wages for purposes of the employee retention credit,
which was the amount of qualified wages included
in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the
minimum amount of payroll costs, together with any
other eligible expenses reported on the PPP Loan
Forgiveness Application, sufficient to support the
amount of the PPP loan that is forgiven. It may not
treat that amount as qualified wages for purposes of
the employee retention credit. Employer B is not
treated as making a deemed election with respect to
$50,000 of the qualified wages ($250,000 reported
on the PPP Loan Forgiveness Application, minus
$200,000 reported on the PPP Loan Forgiveness Application up to the amount of the loan that is forgiven), and it may treat that amount as qualified wages
for purposes of the employee retention credit.
Example 3: Employer C received a PPP loan of
$200,000. Employer C is an eligible employer and
paid $200,000 of qualified wages that would qualify
for the employee retention credit during the second
and third quarters of 2020. Employer C also paid other eligible expenses of $70,000. In order to receive
forgiveness of the PPP loan in its entirety, Employer C was required, under the SBA rules, to report a
total of $200,000 of payroll costs and other eligible
expenses (and a minimum of $120,000 of payroll
costs). Employer C submitted a PPP Loan Forgiveness Application and reported the $200,000 of qualified wages as payroll costs in support of forgiveness
of the entire PPP loan, but did not report the other
eligible expenses of $70,000. Employer C received a
decision under section 7A(g) of the Small Business
Act in the first quarter of 2021 for forgiveness of the
entire PPP loan amount of $200,000.
Employer C is deemed to have made an election
not to take into account $200,000 of qualified wages
for purposes of the employee retention credit, which
was the amount of qualified wages included in the
payroll costs reported on the PPP Loan Forgiveness
Application up to (but not exceeding) the minimum
amount of payroll costs, together with any other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount
of the PPP loan that is forgiven. Although Employer
C could have reported $70,000 of eligible expenses
(other than payroll costs) and $130,000 of payroll
costs, Employer C reported $200,000 of qualified
wages as payroll costs on the PPP Loan Forgiveness
Application. As a result, no portion of those qualified
wages reported as payroll costs may be treated as
qualified wages for purposes of the employee retention credit. Employer C cannot reduce the deemed
election by the amount of the other eligible expenses
that it could have reported on its PPP Loan Forgiveness Application.
Example 4: Same facts as Example 3, except
Employer C submitted a PPP Loan Forgiveness
Application and reported the $200,000 of qualified
wages as payroll costs, as well as the $70,000 of
other eligible expenses, in support of forgiveness of
the PPP loan. Employer C received a decision under section 7A(g) of the Small Business Act in the
first quarter of 2021 for forgiveness of the entire PPP
loan amount of $200,000. In this case, Employer C
is deemed to have made an election not to take into
account $130,000 of qualified wages for purposes of
the employee retention credit, which was the amount
of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up
to (but not exceeding) the minimum amount of pay-
roll costs, together with the $70,000 of other eligible expenses reported on the PPP Loan Forgiveness
Application, sufficient to support the amount of the
PPP loan that was forgiven. As a result, $70,000 of
the qualified wages reported as payroll costs may be
treated as qualified wages for purposes of the employee retention credit.
Example 5: Same facts as Example 4, except Employer C paid $90,000 of other eligible expenses, and
reported the $200,000 of qualified wages as payroll
costs, as well as the $90,000 of other eligible expenses, in support of forgiveness of the entire PPP loan.
In this case, Employer C is deemed to have made an
election not to take into account $120,000 of qualified wages for purposes of the employee retention
credit, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan
Forgiveness Application up to (but not exceeding)
the minimum amount of payroll costs, together with
the $90,000 of other eligible expenses reported on
the PPP Loan Forgiveness Application, sufficient to
support the amount of the PPP loan that was f
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