skip to main content

IRS Issues Guidance on Employee Retention Credit

IRS Issues Guidance on Employee Retention Credit

The IRS recently issued Notice 2021-20, providing much needed guidance in regards to the process of claiming the Employee Retention Credit (ERC) for calendar year 2020. Employers that utilize a PEO, CPEO or other third-party service provider are eligible to claim the ERC through their third-party payer. The PEO/CPEO would need to file an amended Form 941 and Schedule R for the applicable quarter(s) that impact their client customers. The filing of Form 7200 or the reduction of current payroll tax obligations related to quarters ending in 2020 is not an acceptable method to claim ERC.

The ERC has specific qualifications placed on employers, and under the guidance issued, a PEO/CPEO must collect any information from the client customer necessary to accurately claim the ERC on their behalf. This includes information pertaining to other tax credits claimed (emergency paid sick or family leave and/or paid family medical leave) as well as whether the client received a PPP Loan. The Notice provides that a PEO/CPEO may rely upon the client customer information provided as well as the client customer’s information regarding their eligibility to claim the ERC. The PEO or the client customer must maintain all records which substantiate the client customer’s eligibility for the ERC. Failure to provide to the IRS any requested information to substantiate the ERC will result in each party being liable for any employment taxes that are due as a result of an improper ERC claim.

To find out more about this newly issued guidance and how to best protect your PEO, please contact one of our PEO team members.


Complete the form below to speak with one of our professionals

Hide Firm Disclaimer


UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc., and its subsidiary entities. UHY Advisors, Inc.’s subsidiaries, including UHY Consulting, Inc., provide tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors” and “UHY Consulting”. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP, UHY Advisors, Inc. and UHY Consulting are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP, UHY Advisors and/or UHY Consulting (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.