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The ERC, created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was extended for six months and modified by the Consolidated Appropriations Act, 2021 (CAA).

In March, the IRS provided guidance for employers claiming the ERC for 2020. Notice 2021-23 addresses the extension of the ERC for the first two quarters of 2021. The American Rescue Plan Act of 2021 (ARPA) extended the ERC through December 31, 2021. The IRS will provide more guidance on changes to the ERC available under the ARPA later. Changes to the ERC under the CAA The CAA extends the ERC from January 1 through June 30, 2021.

Notice 2021-23 details changes to the ERC under the CAA, including:

• An increase to the maximum credit amount. Eligible employers can claim a refundable tax credit against the employer share of social security tax equal to 70% of the qualified wages they pay to employees from January 1 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter (a total of $14,000 for the first two calendar quarters of 2021).

Employers are now permitted to use an alternative quarter to calculate gross receipts. Under this election, an employer may generally determine if the decline in gross receipts test is met for a calendar quarter in 2021 by comparing its gross receipts for the immediately preceding calendar quarter with those for the corresponding calendar quarter in 2019 (substituting 2020 for 2019 if the employer did not exist as of the beginning of that quarter in 2019). Eligible employers must maintain documentation to support their determination of the decline in gross receipts, including which calendar quarter they elected to use to measure the decline. An election to use an alternative quarter to calculate gross receipts is made by claiming the ERC for the quarter using the alternative quarter to calculate gross receipts.

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