There has been a lot of information released lately on different pieces of legislation to help employees and employers alike during this COVID-19 era. The impact of the virus has been felt by many both physically (whether only having to stay indoors most of the time or having been diagnosed with the virus) and economically. 

In today’s post, I want to discuss the Employee Retention Tax Credit to explain who qualifies for the credit and how it’s paid. The Corona Virus Aid, Relief, and Economic Security Act. Also known as the CARES act) created an employee retention tax credit for employers who are closed, partially closed, or experiencing significant revenue losses as a result of the COVID-19 pandemic.

Who is Eligible?

Private employers, including non-profits, carrying on a trade or business in 2020 that: 

• Have operations partially or fully suspended as a result of orders from a governmental authority due to COVID-19, or 
• Experience a decline in gross receipts by more than 50% in a quarter compared to the same quarter in 2019 (eligibility ends when gross receipts in a quarter exceed 80% compared to the same 2019 quarter) 

With respect to tax-exempt organizations under 501(c) of the tax code, the requirement to be partially or fully suspended applies to all operations of the organization. 

How Much is the Tax Credit?

The tax credit is  50% of the first $10,000 of compensation, including the employer portion of health benefits, for each eligible employee. Compensation does not include paid sick or family leave for which the employer is reimbursed under the Families First Coronavirus Response Act (more info on that legislation can be found at bit.ly/39qzJ5D and bit.ly/2WOtaXS)

The credit only applies to wages paid after March 12, 2020 and before January 1, 2021  

Which Employees Count Toward Eligibility?

• For employers with more than 100 employees: Full-time employees who are being paid but not providing service due to either a full or partial shutdown or a reduction in gross receipts count toward eligibility 
• For employers with 100 or fewer full-time employees: All employees, regardless of whether those employees are providing service, count toward eligibility 
• Employers may not claim the same employee for this credit and the Work Opportunity Tax Credit for the same period. In addition, employers may not claim the same wages for an employee under this credit and also under the employer credit in section 45S for FMLA

An eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:

• If an employer receives a Small Business Interruption Loan under the Paycheck Protection Program, authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
• Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
• Wages counted for this credit can’t be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
• Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.

Obviously, this credit is not allowing you to double-dip to receive a benefit. So it’s important to track what benefit you are receiving from other programs to make sure you qualify for this tax credit.

How is the Credit Paid?

The refundable credit is applied against the employer portion of payroll taxes. The Treasury Department will develop a process for employers to receive an advance payment of the tax credit.

If you are in the situation where you can take this credit, make sure to let us know when paying wages so we can determine the best method for us to assist you with this task.
For more information on this topic, see https://www.irs.gov/pub/irs-pdf/i7200.pdf