Frequently Asked Questions
Who is eligible for the Election to Not Take ERC Wages into Account?
Eligible employers who wish to coordinate the ERC with other tax incentives like the R&D credit or Work Opportunity Tax Credit.
How does the Election to Not Take ERC Wages into Account work?
Allows an employer to elect not to treat certain wages as qualified wages for the ERC, which can be used to optimize for other credits or to avoid the deduction disallowance under section 280C.
What law authorizes the Election to Not Take ERC Wages into Account?
The Election to Not Take ERC Wages into Account is authorized under IRC §3134(g) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §3134
Source: Internal Revenue Code, Title 26, United States Code
§ 3134. Employee retention credit for employers subject to closure due to COVID–19(a) In generalIn the case of an eligible employer, there shall be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 70 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.
(b) Limitations and refundability(1) In general(A) Wages taken into accountThe amount of qualified wages with respect to any employee which may be taken into account under subsection (a) by the eligible employer for any calendar quarter shall not exceed $10,000.
(B) Recovery startup businessesIn the case of an eligible employer which is a recovery startup business (as defined in subsection (c)(5)), the amount of the credit allowed under subsection (a) (after application of subparagraph (A)) for any calendar quarter shall not exceed $50,000.
(2) Credit limited to employment taxesThe credit allowed by subsection (a) with respect to any calendar quarter shall not exceed the applicable employment taxes (reduced by any credits allowed under sections 3131 and 3132) on the wages paid with respect to the employment of all the employees of the eligible employer for such calendar quarter.
(3) Refundability of excess creditIf the amount of the credit under subsection (a) exceeds the limitation of paragraph (2) for any calendar quarter, such excess shall be treated as an overpayment that shall be refunded under sections 6402(a) and 6413(b).
(c) DefinitionsFor purposes of this section—(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”.
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