New safe harbor for ERC gross-receipts calculation.

• Author: Strausfeld, Dave
• Position: Employee retention credit

The IRS issued a safe harbor that allows an employer to exclude certain amounts received from other coronavirus economic relief programs in determining whether it qualifies for the employee retention credit (ERC) based on a decline in gross receipts (Rev. Proc. 2021-33).

The amounts that can be excluded in calculated gross receipts are:

* The forgiveness of Paycheck Protection Program (PPP) loans;

* Shuttered Venue Operators Grants (SVOGs) under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, part of the Consolidated Appropriations Act, 2021, P.L. 116-260; and

* Restaurant Revitalization Fund (RRF) grants under the American Rescue Plan Act, P.L. 117-2.

The way in which gross receipts are computed is important because an employer may be eligible for the ERC if its gross receipts for a calendar quarter decline by a certain percentage as compared with a prior calendar quarter. While the amounts received from the other coronavirus relief programs listed above already are excluded from an employer's gross income, they must be included in its gross receipts unless the safe harbor is used, the IRS said.

According to the IRS, the safe harbor is needed because Congress intended that employers be able to participate in these other coronavirus economic relief programs and simultaneously claim the ERC, provided that the same wage dollars that are paid for or reimbursed with other relief program funds are not treated as qualified wages for purposes of the ERC. Without the safe harbor, the IRS noted, an employer might be precluded from claiming an ERC "solely because its participation in the [other] relief program resulted in a temporary increase in gross receipts within the meaning of the tax law."

The safe harbor

Under the safe harbor, an employer may exclude from its gross receipts the amount of PPP loan forgiveness, SVOGs, and RRF grants in determining eligibility to claim the...