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Accountants Ask for More Guidance on Employee Retention Credit

Posted on Apr. 21, 2020

The employee retention tax credit implemented by the coronavirus economic relief legislation still needs further guidance, according to the American Institute of CPAs.

The AICPA detailed several areas regarding the credit on which businesses need clarification in an April 17 letter to Treasury Assistant Secretary for Tax Policy David Kautter and IRS Commissioner Charles Rettig, as Treasury works to implement the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136).

The AICPA is requesting guidance on how rules similar to section 280C(a) apply to the employee retention tax credit and whether businesses can defer Social Security tax payments of compensation earned before March 27, the date of the law’s enactment.

The institute recommended that Treasury allow businesses to deduct their Social Security tax obligations before applying the credit.

“It is unclear if an employer is allowed to take a deduction for the total amount of payroll taxes incurred or the total amount of payroll taxes paid after application of the credit,” the AICPA said.

The group requested clarity on the law’s implementation in specific situations that include whether an employer can claim the credit for employees who work a reduced schedule but are still paid their regular wages and whether an employer aggregated under the CARES Act’s aggregation rules can claim the retention credit if a related entity receives a Paycheck Protection Program loan from the Small Business Administration.

The AICPA also wants Treasury to clarify the definitions of the terms “partial suspension of operations” and “trade or business” used in the CARES Act.

Treasury guidance seems to conflict with the legislative language on whether nonprofits that haven’t been fully or partially suspended can use the gross receipts test to qualify for payment of retention pay, the AICPA said. While the CARES Act implies that they can’t, Treasury’s FAQ implies that they can, the institute said.

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