Safe Harbor for Employers Claiming the Employee Retention Credit
The IRS has issued Rev. Proc 2021-33 which provides a safe harbor for employers claiming the Employee Retention Credit (ERC). This safe harbor allows employers to exclude certain amounts from their gross receipts when determining their eligibility for the ERC.
Employers claim the ERC on their employment tax return, generally Form 941, Employers Quarterly Federal Tax Return, or adjusted employment tax return, generally Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.
Rev. Proc. 2021-33, allows employers to exclude the following amounts from gross receipts:
- The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
- Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
- Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.
The revenue procedure points out that, absent the safe harbor, these amounts would be included in gross revenue.
An employer electing this safe harbor:
- May exclude the above amounts from gross receipts only to determine whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return.
- Must exclude the above amounts from their gross receipts for each calendar quarter in which gross receipts are relevant to determining their eligibility to claim the ERC.
- Must also apply the safe harbor to all employers treated as a single employer under the aggregation rules.
This safe harbor does not permit the employer to exclude the above items from gross receipts for any other federal tax purpose.