26 U.S.C. § 3134 — Employee retention credit for employers

Page 2739 TITLE 26—INTERNAL REVENUE CODE § 3134 (3) regulations or other guidance providing for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the credit allowed under this section, (4) regulations or other guidance for recap- turing the benefit of credits determined under this section in cases where there is a subse- quent adjustment to the credit determined under subsection (a), (5) regulations or other guidance to ensure that the wages taken into account under this section conform with the paid leave required to be provided under the Emergency Family and Medical Leave Expansion Act (including the amendments made by such Act), (6) regulations or other guidance to permit the advancement of the credit determined under subsection (a), and (7) regulations or other guidance with re- spect to the allocation, reporting, and sub- stantiation of collectively bargained defined benefit pension plan contributions and collec- tively bargained apprenticeship program con- tributions. (h) Application of section This section shall apply only to wages paid with respect to the period beginning on April 1, 2021, and ending on September 30, 2021. (i) Treatment of deposits The Secretary shall waive any penalty under section 6656 for any failure to make a deposit of applicable employment taxes if the Secretary determines that such failure was due to the an- ticipation of the credit allowed under this sec- tion. (j) Non-discrimination requirement No credit shall be allowed under this section to any employer for any calendar quarter if such employer, with respect to the availability of the provision of qualified family leave wages to which this section otherwise applies for such calendar quarter, discriminates in favor of high- ly compensated employees (within the meaning of section 414(q)), full-time employees, or em- ployees on the basis of employment tenure with such employer. (Added Pub. L. 117–2, title IX, § 9641(a), Mar. 11, 2021, 135 Stat. 166.) Editorial Notes REFERENCES IN TEXT The Emergency Family and Medical Leave Expansion Act and such Act, referred to in subsecs. (c)(1), (2)(B) and (g)(5), is div. C of Pub. L. 116–127, Mar. 18, 2020, 134 Stat. 189. For complete classification of this Act to the Code, see Short Title of 2020 Amendment note set out under section 2601 of Title 29, Labor, and Tables. The Family and Medical Leave Act of 1993 and such Act, referred to in subsec. (c)(2), is Pub. L. 103–3, Feb. 5, 1993, 107 Stat. 6, which enacted chapter 28 (§ 2601 et seq.) of Title 29, Labor, sections 60m and 60n of Title 2, The Congress, and sections 6381 to 6387 of Title 5, Gov- ernment Organization and Employees, amended section 2105 of Title 5, and enacted provisions set out as notes under section 2601 of Title 29. Sections 102, 105, and 110 of the Act are classified to sections 2612, 2615, and 2620, respectively, of Title 29. For complete classification of this Act to the Code, see Short Title note set out under section 2601 of Title 29 and Tables. Section 5102(a) of the Families First Coronavirus Re- sponse Act, referred to in subsec. (c)(2)(A)(i), is section 5102(a) of Pub. L. 116–127, which is set out in a note under section 2601 of Title 29, Labor. Section 2301 of the CARES Act, referred to in subsec. (f)(3), is section 2301 of title II of div. A of Pub. L. 116–136, which is set out as a note under section 3111 of this title. Section 7 of the Small Business Act, referred to in subsec. (f)(7)(A)(i), (B), is classified to section 636 of Title 15, Commerce and Trade. Section 7A of the Small Business Act, referred to in subsec. (f)(7)(A)(i), (B), is classified to section 636m of Title 15, Commerce and Trade. Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, referred to in subsec. (f)(7)(A)(ii), is classified to section 9009a of Title 15, Commerce and Trade. Section 5003 of the American Rescue Plan Act of 2021, referred to in subsec. (f)(7)(A)(iii), is classified to sec- tion 9009c of Title 15, Commerce and Trade. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section applicable to amounts paid with respect to calendar quarters beginning after Mar. 31, 2021, see sec- tion 9641(d) of Pub. L. 117–2, set out as a note under secton 3131 of this title. § 3133. Special rule related to tax on employers (a) In general The credit allowed by section 3131 and the credit allowed by section 3132 shall each be in- creased by the amount of the taxes imposed by subsections (a) and (b) of section 3111 and sec- tion 3221(a) on qualified sick leave wages, or qualified family leave wages, for which credit is allowed under such section 3131 or 3132 (respec- tively). (b) Denial of double benefit For denial of double benefit with respect to the credit increase under subsection (a), see sec- tions 3131(f)(3) and 3132(f)(3). (Added Pub. L. 117–2, title IX, § 9641(a), Mar. 11, 2021, 135 Stat. 171.) Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section applicable to amounts paid with respect to calendar quarters beginning after Mar. 31, 2021, see sec- tion 9641(d) of Pub. L. 117–2, set out as a note under secton 3131 of this title. § 3134. Employee retention credit for employers subject to closure due to COVID–19 (a) In general In the case of an eligible employer, there shall be allowed as a credit against applicable em- ployment taxes for each calendar quarter an amount equal to 70 percent of the qualified wages with respect to each employee of such em- ployer for such calendar quarter. (b) Limitations and refundability (1) In general (A) Wages taken into account The amount of qualified wages with re- spect to any employee which may be taken into account under subsection (a) by the eli- gible employer for any calendar quarter shall not exceed $10,000. Page 2740 TITLE 26—INTERNAL REVENUE CODE § 3134 (B) Recovery startup businesses In 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 applica- tion of subparagraph (A)) for any calendar quarter shall not exceed $50,000. (2) Credit limited to employment taxes The credit allowed by subsection (a) with re- spect 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 em- ployment of all the employees of the eligible employer for such calendar quarter. (3) Refundability of excess credit If 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 re- funded under sections 6402(a) and 6413(b). (c) Definitions For purposes of this section— (1) Applicable employment taxes The 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 general The term ‘‘eligible employer’’ means any employer— (i) which was carrying on a trade or busi- ness 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 busi- ness described in clause (i) is fully or partially suspended during the calendar quarter due to orders from an appro- priate 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 em- ployer 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 sub- stituting ‘‘2020’’ for ‘‘2019’’. (B) Election to use alternative quarter At the election of the employer— (i) subparagraph (A)(ii)(II) shall be ap- plied— (I) by substituting ‘‘for the imme- diately preceding calendar quarter’’ for ‘‘for such calendar quarter’’, and (II) by substituting ‘‘the corresponding calendar quarter in calendar year 2019’’ for ‘‘the same calendar quarter in cal- endar year 2019’’, and (ii) the last sentence of subparagraph (A) shall be applied by substituting ‘‘the cor- responding calendar quarter in calendar year 2019’’ for ‘‘the same calendar quarter in calendar year 2019’’. An election under this subparagraph shall be made at such time and in such manner as the Secretary shall prescribe. (C) Tax-exempt organizations In the case of an organization which is de- scribed in section 501(c) and exempt from tax under section 501(a)— (i) clauses (i) and (ii)(I) of subparagraph (A) shall apply to all operations of such or- ganization, and (ii) any reference in this section to gross receipts shall be treated as a reference to gross receipts within the meaning of sec- tion 6033. (3) Qualified wages (A) In general The term ‘‘qualified wages’’ means— (i) in the case of an eligible employer for which the average number of full-time em- ployees (within the meaning of section 4980H) employed by such eligible employer during 2019 was greater than 500, wages paid by such eligible employer with re- spect to which an employee is not pro- viding services due to circumstances de- scribed in subclause (I) or (II) of paragraph (2)(A)(ii), or (ii) in the case of an eligible employer for which the average number of full-time employees (within the meaning of section 4980H) employed by such eligible employer during 2019 was not greater than 500— (I) with respect to an eligible employer described in subclause (I) of paragraph (2)(A)(ii), wages paid by such eligible em- ployer with respect to an employee dur- ing any period described in such clause, or (II) with respect to an eligible em- ployer described in subclause (II) of such paragraph, wages paid by such eligible employer with respect to an employee during such quarter. (B) Special rule for employers not in exist- ence in 2019 In the case of any employer that was not in existence in 2019, subparagraph (A) shall be applied by substituting ‘‘2020’’ for ‘‘2019’’ each place it appears. (C) Severely financially distressed employers (i) In general Notwithstanding subparagraph (A)(i), in the case of a severely financially dis- Page 2741 TITLE 26—INTERNAL REVENUE CODE § 3134 tressed employer, the term ‘‘qualified wages’’ means wages paid by such em- ployer with respect to an employee during any calendar quarter. (ii) Definition The term ‘‘severely financially dis- tressed employer’’ means an eligible em- ployer as defined in paragraph (2), deter- mined by substituting ‘‘less than 10 per- cent’’ for ‘‘less than 80 percent’’ in sub- paragraph (A)(ii)(II) thereof. (D) Exception The term ‘‘qualified wages’’ shall not in- clude any wages taken into account under sections 41, 45A, 45P, 45S, 51, 1396, 3131, and 3132. (4) Wages (A) In general The term ‘‘wages’’ means wages (as defined in section 3121(a)) and compensation (as de- fined in section 3231(e)). For purposes of the preceding sentence, in the case of any orga- nization or entity described in subsection (f)(2), wages as defined in section 3121(a) shall be determined without regard to para- graphs (5), (6), (7), (10), and (13) of section 3121(b) (except with respect to services per- formed in a penal institution by an inmate thereof). (B) Allowance for certain health plan ex- penses (i) In general Such term shall include amounts paid by the eligible employer to provide and main- tain a group health plan (as defined in sec- tion 5000(b)(1)), but only to the extent that such amounts are excluded from the gross income of employees by reason of section 106(a). (ii) Allocation rules For purposes of this section, amounts treated as wages under clause (i) shall be treated as paid with respect to any em- ployee (and with respect to any period) to the extent that such amounts are properly allocable to such employee (and to such period) in such manner as the Secretary may prescribe. Except as otherwise pro- vided by the Secretary, such allocation shall be treated as properly made if made on the basis of being pro rata among peri- ods of coverage. (5) Recovery startup business The term ‘‘recovery startup business’’ means any employer— (A) which began carrying on any trade or business after February 15, 2020, and (B) for which the average annual gross re- ceipts of such employer (as determined under rules similar to the rules under sec- tion 448(c)(3)) for the 3-taxable-year period ending with the taxable year which precedes the calendar quarter for which the credit is determined under subsection (a) does not ex- ceed $1,000,000. (6) Other terms Any term used in this section which is also used in this chapter or chapter 22 shall have the same meaning as when used in such chap- ter. (d) Aggregation rule All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one employer for purposes of this section. (e) Certain rules to apply For purposes of this section, rules similar to the rules of sections 51(i)(1) and 280C(a) shall apply. (f) Certain governmental employers (1) In general This credit shall not apply to the Govern- ment of the United States, the government of any State or political subdivision thereof, or any agency or instrumentality of any of the foregoing. (2) Exception Paragraph (1) shall not apply to— (A) any organization described in section 501(c)(1) and exempt from tax under section 501(a), or (B) any entity described in paragraph (1) if— (i) such entity is a college or university, or (ii) the principal purpose or function of such entity is providing medical or hos- pital care. In the case of any entity described in sub- paragraph (B), such entity shall be treated as satisfying the requirements of subsection (c)(2)(A)(i). (g) Election to not take certain wages into ac- count This section shall not apply to so much of the qualified wages paid by an eligible employer as such employer elects (at such time and in such manner as the Secretary may prescribe) to not take into account for purposes of this section. (h) Coordination with certain programs (1) In general This section shall not apply to so much of the qualified wages paid by an eligible em- ployer as are taken into account as payroll costs in connection with— (A) a covered loan under section 7(a)(37) or 7A of the Small Business Act, (B) a grant under section 324 of the Eco- nomic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or (C) a restaurant revitalization grant under section 5003 of the American Rescue Plan Act of 2021. (2) Application where PPP loans not forgiven The Secretary shall issue guidance providing that payroll costs paid during the covered pe- riod shall not fail to be treated as qualified wages under this section by reason of para- graph (1) to the extent that— (A) a covered loan of the taxpayer under section 7(a)(37) of the Small Business Act is not forgiven by reason of a decision under section 7(a)(37)(J) of such Act, or Page 2742 TITLE 26—INTERNAL REVENUE CODE § 3134 (B) a covered loan of the taxpayer under section 7A of the Small Business Act is not forgiven by reason of a decision under sec- tion 7A(g) of such Act. Terms used in the preceding sentence which are also used in section 7A(g) or 7(a)(37)(J) of the Small Business Act shall, when applied in connection with either such section, have the same meaning as when used in such section, respectively. (i) Third party payors Any credit allowed under this section shall be treated as a credit described in section 3511(d)(2). (j) Advance payments (1) In general Except as provided in paragraph (2), no ad- vance payment of the credit under subsection (a) shall be allowed. (2) Advance payments to small employers (A) In general Under rules provided by the Secretary, an eligible employer for which the average number of full-time employees (within the meaning of section 4980H) employed by such eligible employer during 2019 was not great- er than 500 may elect for any calendar quar- ter to receive an advance payment of the credit under subsection (a) for such quarter in an amount not to exceed 70 percent of the average quarterly wages paid by the em- ployer in calendar year 2019. (B) Special rule for seasonal employers In the case of any employer who employs seasonal workers (as defined in section 45R(d)(5)(B)), the employer may elect to apply subparagraph (A) by substituting ‘‘the wages for the calendar quarter in 2019 which corresponds to the calendar quarter to which the election relates’’ for ‘‘the average quar- terly wages paid by the employer in calendar year 2019’’. (C) Special rule for employers not in exist- ence in 2019 In the case of any employer that was not in existence in 2019, subparagraphs (A) and (B) shall each be applied by substituting ‘‘2020’’ for ‘‘2019’’ each place it appears. (3) Reconciliation of credit with advance pay- ments (A) In general The amount of credit which would (but for this subsection) be allowed under this sec- tion shall be reduced (but not below zero) by the aggregate payment allowed to the tax- payer under paragraph (2). Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1). (B) Excess advance payments If the advance payments to a taxpayer under paragraph (2) for a calendar quarter exceed the credit allowed by this section (de- termined without regard to subparagraph (A)), the tax imposed under section 3111(b) or so much of the tax imposed under section 3221(a) as is attributable to the rate in effect under section 3111(b) (whichever is applica- ble) for the calendar quarter shall be in- creased by the amount of such excess. (k) Treatment of deposits The Secretary shall waive any penalty under section 6656 for any failure to make a deposit of any applicable employment taxes if the Sec- retary determines that such failure was due to the reasonable anticipation of the credit allowed under this section. (l) Extension of limitation on assessment Notwithstanding section 6501, the limitation on the time period for the assessment of any amount attributable to a credit claimed under this section shall not expire before the date that is 5 years after the later of— (1) the date on which the original return which includes the calendar quarter with re- spect to which such credit is determined is filed, or (2) the date on which such return is treated as filed under section 6501(b)(2). (m) Regulations and guidance The Secretary shall issue such forms, instruc- tions, regulations, and other guidance as are necessary— (1) to allow the advance payment of the credit under subsection (a) as provided in sub- section (j)(2), subject to the limitations pro- vided in this section, based on such informa- tion as the Secretary shall require, (2) with respect to the application of the credit under subsection (a) to third party payors (including professional employer orga- nizations, certified professional employer or- ganizations, or agents under section 3504), in- cluding regulations or guidance allowing such payors to submit documentation necessary to substantiate the eligible employer status of employers that use such payors, and (3) to prevent the avoidance of the purposes of the limitations under this section, includ- ing through the leaseback of employees. Any forms, instructions, regulations, or other guidance described in paragraph (2) shall require the customer to be responsible for the account- ing of the credit and for any liability for im- properly claimed credits and shall require the certified professional employer organization or other third party payor to accurately report such tax credits based on the information pro- vided by the customer. (n) Application This section shall only apply to wages paid after June 30, 2021, and before October 1, 2021 (or, in the case of wages paid by an eligible employer which is a recovery startup business, January 1, 2022). (Added Pub. L. 117–2, title IX, § 9651(a), Mar. 11, 2021, 135 Stat. 177; amended Pub. L. 117–58, div. H, title VI, § 80604(a), Nov. 15, 2021, 135 Stat. 1341.) Editorial Notes REFERENCES IN TEXT Section 7 of the Small Business Act, referred to in subsec. (h)(1)(A), (2), is classified to section 636 of Title 15, Commerce and Trade. Page 2743 TITLE 26—INTERNAL REVENUE CODE § 3201 1 Section numbers editorially supplied. Section 7A of the Small Business Act, referred to in subsec. (h)(1)(A), (2), is classified to section 636m of Title 15, Commerce and Trade. Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, referred to in subsec. (h)(1)(B), is classified to section 9009a of Title 15, Commerce and Trade. Section 5003 of the American Rescue Plan Act of 2021, referred to in subsec. (h)(1)(C), is classified to section 9009c of Title 15, Commerce and Trade. AMENDMENTS 2021—Subsec. (c)(5)(C). Pub. L. 117–58, § 80604(a)(1), struck out subpar. (C) which read as follows: ‘‘which, with respect to such calendar quarter, is not described in subclause (I) or (II) of paragraph (2)(A)(ii).’’. Subsec. (n). Pub. L. 117–58, § 80604(a)(2), substituted ‘‘October 1, 2021 (or, in the case of wages paid by an eli- gible employer which is a recovery startup business, January 1, 2022)’’ for ‘‘January 1, 2022’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2021 AMENDMENT Pub. L. 117–58, div. H, title VI, § 80604(b), Nov. 15, 2021, 135 Stat. 1341, provided that: ‘‘The amendments made by this section [amending this section] shall apply to calendar quarters beginning after September 30, 2021.’’ EFFECTIVE DATE Pub. L. 117–2, title IX, § 9651(d), Mar. 11, 2021, 135 Stat. 182, provided that: ‘‘The amendments made by this sec- tion [enacting this section and amending section 1324 of Title 31, Money and Finance] shall apply to calendar quarters beginning after June 30, 2021.’’ CHAPTER 22—RAILROAD RETIREMENT TAX ACT Subchapter Sec.1 A. Tax on employees .................................. 3201 B. Tax on employee representatives .......... 3211 C. Tax on employers .................................. 3221 D. General provisions ................................. 3231 E. Tier 2 tax rate determination. ............... 3241 Editorial Notes AMENDMENTS 2001—Pub. L. 107–90, title II, § 204(e)(5), Dec. 21, 2001, 115 Stat. 893, added item for subchapter E. Subchapter A—Tax on Employees Sec. 3201. Rate of tax. 3202. Deduction of tax from compensation. § 3201. Rate of tax (a) Tier 1 tax In addition to other taxes, there is hereby im- posed on the income of each employee a tax equal to the applicable percentage of the com- pensation received during any calendar year by such employee for services rendered by such em- ployee. For purposes of the preceding sentence, the term ‘‘applicable percentage’’ means the percentage equal to the sum of the rates of tax in effect under subsections (a) and (b) of section 3101 for the calendar year. (b) Tier 2 tax In addition to other taxes, there is hereby im- posed on the income of each employee a tax equal to the percentage determined under sec- tion 3241 for any calendar year of the compensa- tion received during such calendar year by such employee for services rendered by such em- ployee. (c) Cross reference For application of different contribution bases with respect to the taxes imposed by subsections (a) and (b), see section 3231(e)(2). (Aug. 16, 1954, ch. 736, 68A Stat. 431; Aug. 31, 1954, ch. 1164, pt. II, § 206(a), 68 Stat. 1040; Pub. L. 86–28, pt. II, § 201(a), May 19, 1959, 73 Stat. 28; Pub. L. 88–133, title II, § 201, Oct. 5, 1963, 77 Stat. 221; Pub. L. 89–97, title I, §§ 105(b)(1), 111(c)(1), July 30, 1965, 79 Stat. 335, 342; Pub. L. 89–212, §§ 4, 5(a), Sept. 29, 1965, 79 Stat. 861; Pub. L. 89–699, title III, § 301(a), Oct. 30, 1966, 80 Stat. 1078; Pub. L. 89–700, title III, § 301(v), (vi), Oct. 30, 1966, 80 Stat. 1088, 1089; Pub. L. 93–69, title I, § 102(a), July 10, 1973, 87 Stat. 162; Pub. L. 94–93, title II, § 201, Aug. 9, 1975, 89 Stat. 466; Pub. L. 94–455, title XIX, § 1903(a)(6), Oct. 4, 1976, 90 Stat. 1807; Pub. L. 97–34, title VII, § 741(a), Aug. 13, 1981, 95 Stat. 347; Pub. L. 98–76, title II, §§ 211(a), 221, Aug. 12, 1983, 97 Stat. 419, 420; Pub. L. 100–203, title IX, § 9031(a), Dec. 22, 1987, 101 Stat. 1330–296; Pub. L. 101–508, title V, § 5125(a), Nov. 5, 1990, 104 Stat. 1388–285; Pub. L. 107–90, title II, § 204(c), Dec. 21, 2001, 115 Stat. 892; Pub. L. 113–295, div. A, title II, § 221(a)(100)(A), Dec. 19, 2014, 128 Stat. 4052.) Editorial Notes AMENDMENTS 2014—Subsec. (b). Pub. L. 113–295 amended subsec. (b) generally. Prior to amendment, subsec. (b) consisted of pars. (1) and (2) establishing the tier 2 tax and its appli- cable percentage. 2001—Subsec. (b). Pub. L. 107–90 amended heading and text of subsec. (b) generally. Prior to amendment, text read as follows: ‘‘In addition to other taxes, there is hereby imposed on the income of each employee a tax equal to 4.90 percent of the compensation received dur- ing any calendar year by such employee for services rendered by such employee.’’ 1990—Subsec. (a). Pub. L. 101–508 substituted ‘‘appli- cable’’ for ‘‘following’’ before ‘‘percentage of the’’ and provision defining the term ‘‘applicable percentage’’ for provision specifying that in the case of compensation received during 1985 the rate of tax was 7.05 percent, for 1986 or 1987 the rate was 7.15 percent, for 1988 or 1989 the rate was 7.51 percent, and 1990 or thereafter the rate was 7.65 percent. 1987—Subsec. (b). Pub. L. 100–203 amended subsec. (b) generally. Prior to amendment, subsec. (b) read as fol- lows: ‘‘In addition to other taxes, there is hereby im- posed on the income of each employee a tax equal to the following percentage of the compensation received during any calendar year by such employee for services rendered by such employee: ‘‘In the case of compensation received during: The rate shall be: 1985 ............................................................. 3.50 1986 or thereafter ........................................ 4.25.’’ 1983—Pub. L. 98–76, § 221, amended section generally, substituting a two tiered tax system with accom- panying tax rate tables and a cross reference to section 3231 of this title, for provisions which had taxed an em- ployee at 2.75 percent of so much of the compensation paid in any calendar month to such employee for serv- ices rendered by him as was not in excess of an amount equal to one-twelfth of the current maximum annual