IRS Revises Guidance on Employee Retention Credit in PPP Loans

Following outcry from the business community and Congress, the IRS reversed course on May 8, saying businesses can get the new employee retention tax credit even if they are paying health benefits but not wages for workers.

“Eligible employers may treat health plan expenses allocable to the applicable periods as qualified wages even if the employees are not working and the eligible employers does not pay the employees any wages for the time they are not working,” the agency said in an FAQ posted on its website.

The IRS previously said employers must be paying wages in order to receive the break. That prompted an uproar from congressional lawmakers who said it would dissuade employers from continuing to offer health insurance to furloughed workers. 

AFS joined more than 150 groups in signing onto a letter sent last week to the Chairmen of the House Ways and Means Committee Richard Neal (D-Mass) and Senate Finance Committee Chuck Grassley (R-Iowa) opposing the recent IRS Notice 2020-32 denying the deductibility of costs associated with PPP loan forgiveness.