Question #30:
What are “qualified wages”?
Found under the G. Qualified Wages section of the Employee Retention Credit (ERC) IRS Notice 2021-20 with updated guidance to help business owners follow the current ERC rules.
The answer to question #30, What are “qualified wages”?, can be found below.
ERC IRS Notice 2021-20 Question #30:
G. Qualified Wages
What are “qualified wages”?
Qualified wages are generally limited to wages (as defined in section 3121(a) of the Code) and compensation (as defined in section 3231(e) of the Code), both determined without regard to the social security wage base, paid by an eligible employer to some or all of its employees after March 12, 2020, and before January 1, 2021.15 Section 2301(c)(5)(B) of the CARES Act provides that “wages” include amounts paid by an eligible employer to provide} and maintain a group health plan (as defined in section 5000(b)(1) of the Code), but only to the extent that the amounts are excluded from the gross income of employees by reason of section 106(a) of the Code.
Amounts treated as wages under section 2301(c)(5)(B) of the CARES Act are treated as paid with respect to any employee (and with respect to any period) to the extent the amounts are properly allocable to the employee (and to the period), and, except as otherwise provided by the Secretary, the allocation will be treated as proper if made on the basis of being pro rata among periods of coverage. See Q/As 41 and 42. Qualified wages do not include qualified sick leave wages and qualified family leave wages taken into account under sections 7001 and 7003 of the FFCRA.
The specific circumstances in which wage payments by an eligible employer will be considered qualified wages depend, in part, on the average number of full-time employees the eligible employer employed during 2019. For a large eligible employer (more than 100 employees), qualified wages are the wages paid to an employee for time that the employee is not providing services due to either (1) a full or partial suspension of the employer’s business operations due to a governmental order, or (2) the business experiencing a significant decline in gross receipts. For a small eligible employer (100 or fewer employees), qualified wages are the wages paid with respect to an employee during any period in the calendar quarter in which the business operations are fully or partially suspended due to a governmental order or during any calendar quarter in which the business is experiencing a significant decline in gross receipts.
Example: Employer A is a small eligible employer that has had a partial suspension of its business operations due to a governmental order. Employer A offers its employees various benefits that provide for pre-tax salary reduction contributions, including a qualified section 401(k) plan, a fully-insured group health plan, a dependent care assistance program satisfying the requirements of section 129 of the Code, and qualified transportation benefits satisfying the requirements of section 132(f) of the Code. Employer A also makes matching and nonelective contributions to the qualified section 401(k) plan and pays the portion of the cost of maintaining the group health plan remaining after the employees’ share. None of these amounts are wages taken into account for purposes of the credits claimed under sections 7001 and 7003 of the FFCRA.
Employer A may treat as qualified wages the amounts its employees contribute as pre-tax salary reduction contributions to the qualified section 401(k) plan with respect to the period of the partial suspension of operations because those amounts are wages within the meaning of section 3121(a).
Employer A may also treat all amounts paid toward maintaining the group health plan (including any employee pre-tax salary reduction contribution) with respect to the period of the partial suspension of operations as qualified health plan expenses and thus as qualified wages.
Employer A may not treat as qualified wages the amounts Employer A contributes as matching or nonelective contributions to the qualified section 401(k) plan, nor may it treat as qualified wages any employee pre-tax salary reduction contributions toward the dependent care assistance program or qualified transportation benefits.
These amounts do not constitute wages within the meaning of section 3121(a) and therefore are not qualified wages for purposes of the employee retention credit.
For more information about the Employee Retention Credit (ERC) IRS Notice 2021-20, visit the Internal Revenue Service (IRS) Department of the Treasury, official IRS.gov tax website.
Conclusion and Summary on What are “qualified wages”? – #30 ERC IRS Notice 2021-20
The answer to Question #30: “What are “qualified wages”?” was answered in detail above. It was found under section “G. Qualified Wages” in IRS Notice 2021-20.
Leave a comment below if you have further questions on the Employee Retention Credit (ERC) or for clarifications on What are “qualified wages”?
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