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Under the Coronavirus Aid, Relief and Economic Support- the CARES Act, the Enhanced Employee Retention Credit (ERC) was introduced to provide a refundable tax credit to employers per employee on a quarterly or annual basis. There have been several enhancements, extensions, and changes in it since its conception, the latest being the 4th August update for the third and fourth quarters of the current financial year.

The IRS and Treasury have brought in the following changes:

  • Eligible Employers that pay qualified wages between June 30, 2021, and January 1, 2022, can get the credit.
  • The definition of an Eligible Employer has been extended to include “Recovery startup businesses.”
  • The definition of qualified wages for “severely financially distressed employers” has been altered.
  • Employee retention credit cannot be utilized for qualified wages taken into account as payroll costs related to a shuttered venue grant or a restaurant revitalization grant. Apart from these, there have been some other adjustments too in the ERC tax credit 2021.

In this update, the IRS and the Treasury have also answered some of the queries they received regarding the employee retention credit, such as:

  • What is the definition of ‘full-time employee’ and whether that definition includes full-time equivalents?
  • What are the approach toward tips as qualified wages and the interaction with the section 45B credit?
  • Can taxpayers who have already filed an income tax return amend that return after claiming the credit on an adjusted employment tax return?
  • Will wages paid to majority owners and their spouses be treated as qualified wages?

Recovery Start-Up Business

Businesses that began operating on February 15, 2020, are defined as ‘recovery startup businesses’ subject to meeting some other criteria:

  • They are not ‘eligible employers’ as defined under the ERC 2021
  • Have less than $ 1 million in annual gross receipts

Yet another change under the ARPA rules for the CARES Act 2021 ERC is that, for the third and fourth quarters of 2021, eligible employers must claim the credit against the employer’s share of Medicare tax in contrast, against the employer’s share of Social Security tax as was the case earlier.

For S & C- Corporations

The latest guidance of the IRS on owners of S-corporations and C-Corporations states that the Employee Retention Credit (ERC) will not be available for the wages paid to a majority owner of the S- corporation or C Corporation or such owner’s spouse, if the majority owner has a sibling (whether by whole or half-blood), ancestor, or lineal descendant.

However, suppose the majority owner of a corporation has no siblings (whole or half-blood), ancestor, or lineal descendant. In that case, those wages will qualify for the Employee Retention Credit.

The developments in the employee retention tax credit can seem confusing and overwhelming. To help you find your way through this complex world of tax credits, myCPE holds frequent webinars where tax experts educate online. Make sure you attend a webinar, virtual conference, or buy a self-study course that will help you understand better.

Imtiaz Munshi, CPA

Imtiaz Munshi, CPA

CFO, AZSTEC LLC

Imtiaz Munshi, CPA (US), is the CFO at Azstec, LLC and a trusted advisor to high-net-worth entrepreneurs. A seasoned tax planner and a business strategist with his 25 years of experience, he helps businesses grow smarter and stronger. Imtiaz specializes in guiding entrepreneurs and enterprises through complex financial decisions with clarity and confidence. His passion lies in simplifying strategy, optimizing tax outcomes, and driving sustainable growth. Through his work and thought leadership, Imtiaz continues to empower CPAs and business owners to stay ahead in an evolving financial landscape shaped by AI, ESG, and data-driven change.

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