26 USC 3134 - Employee retention credit for employers subject to closure due to COVID

View all text of Subchapter D [§ 3131 - § 3134]

§ 3134. Employee retention credit for employers subject to closure due to COVID–19

(a) In general

(b) Limitations and refundability

(1) In general

(A) Wages taken into account

(B) Recovery startup businesses

(2) Credit limited to employment taxes

(3) Refundability of excess credit

(1) Applicable employment taxesThe term “applicable employment taxes” means the following:

(A) The taxes imposed under section 3111(b).

(B) So much of the taxes imposed under section 3221(a) as are attributable to the rate in effect under section 3111(b).

(2) Eligible employer

(A) In generalThe term “eligible employer” means any employer—

(i) which was carrying on a trade or business during the calendar quarter for which the credit is determined under subsection (a), and

(ii) with respect to any calendar quarter, for which—(I) the operation of the trade or business described in clause (i) is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID–19),(II) the gross receipts (within the meaning of section 448(c)) of such employer for such calendar quarter are less than 80 percent of the gross receipts of such employer for the same calendar quarter in calendar year 2019, or(III) the employer is a recovery startup business (as defined in paragraph (5)).

With respect to any employer for any calendar quarter, if such employer was not in existence as of the beginning of the same calendar quarter in calendar year 2019, clause (ii)(II) shall be applied by substituting “2020” for “2019”.

(B) Election to use alternative quarterAt the election of the employer—

(i) subparagraph (A)(ii)(II) shall be applied—(I) by substituting “for the immediately preceding calendar quarter” for “for such calendar quarter”, and(II) by substituting “the corresponding calendar quarter in calendar year 2019” for “the same calendar quarter in calendar year 2019”, and

(ii) the last sentence of subparagraph (A) shall be applied by substituting “the corresponding calendar quarter in calendar year 2019” for “the same calendar quarter in calendar year 2019”.

An election under this subparagraph shall be made at such time and in such manner as the Secretary shall prescribe.

(C) Tax-exempt organizationsIn the case of an organization which is described in section 501(c) and exempt from tax under section 501(a)—

(i) clauses (i) and (ii)(I) of subparagraph (A) shall apply to all operations of such organization, and

(ii) any reference in this section to gross receipts shall be treated as a reference to gross receipts within the meaning of section 6033.

(3) Qualified wages

(A) In generalThe term “qualified wages” means—

(i) in the case of an eligible employer for which the average number of full-time employees (within the meaning of section 4980H) employed by such eligible employer during 2019 was greater than 500, wages paid by such eligible employer with respect to which an employee is not providing services due to circumstances described in subclause (I) or (II) of paragraph (2)(A)(ii), or

(ii) in the case of an eligible employer for which the average number of full-time employees (within the meaning of section 4980H) employed by such eligible employer during 2019 was not greater than 500—(I) with respect to an eligible employer described in subclause (I) of paragraph (2)(A)(ii), wages paid by such eligible employer with respect to an employee during any period described in such clause, or(II) with respect to an eligible employer described in subclause (II) of such paragraph, wages paid by such eligible employer with respect to an employee during such quarter.

(B) Special rule for employers not in existence in 2019

(i) In general

(ii) Definition

(D) Exception

(4) Wages

(A) In general

(B) Allowance for certain health plan expenses

(i) In general

(ii) Allocation rules

(5) Recovery startup businessThe term “recovery startup business” means any employer—

(A) which began carrying on any trade or business after February 15, 2020, and

(B) for which the average annual gross receipts of such employer (as determined under rules similar to the rules under section 448(c)(3)) for the 3-taxable-year period ending with the taxable year which precedes the calendar quarter for which the credit is determined under subsection (a) does not exceed $1,000,000.

(6) Other terms

(d) Aggregation rule

(e) Certain rules to apply

(f) Certain governmental employers

(1) In general

(2) ExceptionParagraph (1) shall not apply to—

(A) any organization described in section 501(c)(1) and exempt from tax under section 501(a), or

(B) any entity described in paragraph (1) if—

(i) such entity is a college or university, or

(ii) the principal purpose or function of such entity is providing medical or hospital care.

In the case of any entity described in subparagraph (B), such entity shall be treated as satisfying the requirements of subsection (c)(2)(A)(i).

(g) Election to not take certain wages into account

(h) Coordination with certain programs

(1) In generalThis section shall not apply to so much of the qualified wages paid by an eligible employer as are taken into account as payroll costs in connection with—

(A) a covered loan under section 7(a)(37) or 7A of the Small Business Act,

(B) a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or

(2) Application where PPP loans not forgivenThe Secretary shall issue guidance providing that payroll costs paid during the covered period shall not fail to be treated as qualified wages under this section by reason of paragraph (1) to the extent that—

(A) a covered loan of the taxpayer under section 7(a)(37) of the Small Business Act is not forgiven by reason of a decision under section 7(a)(37)(J) of such Act, or

(B) a covered loan of the taxpayer under section 7A of the Small Business Act is not forgiven by reason of a decision under section 7A(g) of such Act.

Terms used in the preceding sentence which are also used in section 7A(g) or 7(a)(37)(J) of the Small Business Act shall, when applied in connection with either such section, have the same meaning as when used in such section, respectively.

(i) Third party payors

(j) Advance payments

(1) In general

(2) Advance payments to small employers

(A) In general

(B) Special rule for seasonal employers

(3) Reconciliation of credit with advance payments

(A) In general

(B) Excess advance payments

(k) Treatment of deposits

(l) Extension of limitation on assessmentNotwithstanding section 6501, the limitation on the time period for the assessment of any amount attributable to a credit claimed under this section shall not expire before the date that is 5 years after the later of—

(1) the date on which the original return which includes the calendar quarter with respect to which such credit is determined is filed, or

(2) the date on which such return is treated as filed under section 6501(b)(2).

(m) Regulations and guidanceThe Secretary shall issue such forms, instructions, regulations, and other guidance as are necessary—

(1) to allow the advance payment of the credit under subsection (a) as provided in subsection (j)(2), subject to the limitations provided in this section, based on such information as the Secretary shall require,

(2) with respect to the application of the credit under subsection (a) to third party payors (including professional employer organizations, certified professional employer organizations, or agents under section 3504), including regulations or guidance allowing such payors to submit documentation necessary to substantiate the eligible employer status of employers that use such payors, and

(3) to prevent the avoidance of the purposes of the limitations under this section, including through the leaseback of employees.

Any forms, instructions, regulations, or other guidance described in paragraph (2) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third party payor to accurately report such tax credits based on the information provided by the customer.

(n) Application

(Added Pub. L. 117–2, title IX, § 9651(a), Mar. 11, 2021, 135 Stat. 177; amended Pub. L. 117–58, div. H, title VI, § 80604(a), Nov. 15, 2021, 135 Stat. 1341.)