May A Large Eligible Employer Treat Its Health Plan Expenses As Qualified Wages For Purposes Of The Employee Retention Credit If The Expenses Are Allocable To The Time That Employees Were Not Providing Services? – #42 ERC IRS Notice 2021-20

Question #42:
May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services?

Found under the H. Allocable Qualified Health Plan Expenses 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 #42, May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services?, can be found below.

ERC IRS Notice 2021-20 Question #42:

H. Allocable Qualified Health Plan Expenses

May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services?

A large eligible employer may treat as qualified wages health plan expenses paid or incurred, after March 12, 2020, and before January 1, 2021, allocable to the time that the employees are not providing services during any period in a calendar quarter in which the employer’s business operations are fully or partially suspended due to a governmental order or a calendar quarter in which the employer experiences a significant decline in gross receipts, although only $10,000 per employee for all calendar quarters can be taken into account for the employee retention credit. However, a large eligible employer may not treat as qualified wages health plan expenses allocable to the time the employees are providing services.

Example 1: Employer C is a large eligible employer subject to a governmental order that partially suspends the operation of its trade or business. In response to the governmental order, Employer C reduces all employees’ hours by 50 percent and pays wages to its employees only for the time that the employees are providing services, but Employer C continues to provide the employees with full health care coverage. The 50 percent of Employer C’s health plan expenses allocable to the time that employees are not providing services may be treated as qualified wages. Employer C may not treat the other 50 percent of health plan expenses allocable to the time the employees are providing services as qualified wages.

Example 2: Employer D is a large eligible employer subject to a governmental order that partially suspends the operations of its trade or business. In response to the governmental order, Employer D reduces its employees’ hours by 50 percent, but it reduces its employees’ wages by only 40 percent, so that the employees receive 60 percent of their wages for 50 percent of their normal hours. Employer D continues to cover 100 percent of the employees’ health plan expenses. Employer D may treat as qualified wages: (i) the 10 percent of the wages that it pays employees for time the employees are not providing services, plus (ii) 50 percent of the health plan expenses, because these health plan expenses are allocable to the time that employees were not providing services.

Example 3: Employer E is a large eligible employer subject to a governmental order that fully suspends the operations of its trade or business. Employer E lays off or furloughs its employees (but does not treat these employees as terminated for employment tax purposes) and does not pay wages to the employees, but does continue to cover 100 percent of the employees’ health plan expenses. Employer E may treat as qualified wages the health plan expenses that are allocable to the time that the employees are not providing services.

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 May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services? – #42 ERC IRS Notice 2021-20

The answer to Question #42: “May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services?” was answered in detail above. It was found under section “H. Allocable Qualified Health Plan Expenses” in IRS Notice 2021-20. 

Leave a comment below if you have further questions on the Employee Retention Credit (ERC) or for clarifications in May a large eligible employer treat its health plan expenses as qualified wages for purposes of the employee retention credit if the expenses are allocable to the time that employees were not providing services?

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Cover Image Credit: Irs.gov / IRS Notice 2021-20 / Disaster Loan Advisors.

Mark Monroe