Employee retention tax credit increases in first half of 2021

The Internal Revenue Service has issued guidance for employers claiming the employee retention tax credit in first half of 2021.

The value of the credit is increasing to 70 percent of eligible wages in the first two quarters this year. The credit was initially created by the federal CARES Act enacted last year to encourage businesses to keep employees on their payrolls amid the COVID-19 pandemic.

The credit has been modified by other laws, including the American Rescue Plan Act signed into law in March.

The IRS notice details changes to credit that are in effect for the first half of 2021, including the increase in the maximum credit amount, an expansion in the types of employers eligible to claim the credit, changes to the definition of “eligible wages” and other key information.

The IRS says employers can access the credit for the first half of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Employers with 500 or fewer employees in 2019 can ask for advance payment of the credit after reducing deposits.

Additional guidance on how the credit will be handled for the second half of 2021 is expected to be released in a subsequent notice.