# Bulletin No. 2021–11 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8d257d2e1b58bf9c ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text 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 Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of 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 the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, 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 March 15, 2021 912 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. 2021–11 913 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 March 15, 2021 914 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. 2021–11 915 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 March 15, 2021 916 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 Bulletin No. 2021–11 917 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 March 15, 2021 918 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 Bulletin No. 2021–11 923 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 924 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 Bulletin No. 2021–11 925 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 Bulletin No. 2021–11 927 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 p [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A8d257d2e1b58bf9c. Public record. Not legal advice.