On March 31, 2020, the Internal Revenue Service (IRS) launched the Employee Retention Credit for employers who have been impacted by COVID-19. Below are details about the credit:
ELIGIBILITY
- Designed to keep employees on the payroll.
- Available to all employers regardless of size, including tax-exempt organizations, except:
- State and local governments and their instrumentalities, and
- Small businesses who take small business loans (? Does this include the PPP and EIDL loans? And if so, should we state that.)
- Qualifying employers must fall into one of two categories:
- Employer’s business is fully or partially suspended by government order due to COVID-19 during calendar quarter;
- Measures are calculated each quarter;
- Employer’s gross receipts are below 50% of the comparable quarter in 2019; or
- Once they go above 80% of a comparable quarter in 2019, no longer qualify after the end of quarter.
HOW IS THE CREDIT CALCULATED?
- The amount of the credit is 50% of qualifying wages, paid up to $10,000 in total.
- Wages paid after March 12, 2020 and before January 1, 2021 are eligible.
- Wages are not limited to cash payments, but also include a portion of the cost of employer provided health care.
WHAT WAGES QUALIFY?
- Based on the average number of business’ employees in 2019
- Less than 100
- Based on wages paid to all employees regardless if they worked or not
- More than 100
- Credit allowable only for wages paid to employees who did not work during the calendar quarter
HOW DO YOU RECEIVE THE CREDIT?
- Employers can be immediately reimbursed by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
- Eligible employers must report their total qualified wages and health care costs per quarter on either:
- Quarterly employment tax returns, or
- Form 941 beginning 2nd quarter.
- If the employer’s employment tax deposits are not sufficient to cover the credit, employer may receive an advance payment from the IRS by submitting Form 7200.
