EMPLOYEE RETENTION CREDITS

Written by Matthew Dickens on April 3, 2020. Posted in General

The   Coronavirus Aid, Relief and Economic Security (CARES) Act was just signed into law on March 27, 2020.  It is a gigantic economic stimulus package with many provisions that will affect your business financially.  The following are for businesses with employees and are affected by the Coronavirus Pandemic:

There is an Employee Retention Credit for employers.  If you have retained employees during this difficult time, you may be eligible for this credit.  This credit is effective for wages paid after March 12, 2020 through December 31, 2020.  This credit will cover wages paid during the first quarter of 2020 for which your Form 941 will be due April 30, 2020. You would also need to complete IRS Form 7200 regarding the refundable portion of the credit.  It is still in draft form but is available on www.IRS.gov. 

Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of Social Security payroll tax for 50% of certain wages paid to employees during the COVID-19 crisis.

This credit is available to employers carrying on business during 2020 who meet one of the following criteria:

1. The business operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.
2. Employers who have experienced a more than 50% reduction in quarterly receipts measured on a year-over-year basis relative to the corresponding 2019 quarter. You would use this same measurement until the company quarterly receipts are greater than 80% of the receipts of the corresponding 2019 quarter. 

For employers that meet one of the foregoing criteria and have 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services.  The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employer.  Thus, the credit is a maximum of $5,000 per employee.

Wages don’t include

1. Wages taken into account for the Families First Coronavirus Response Act for required paid sick leave or required paid family leave;
2. Wages taken into account for the employer income tax credit for paid family and medical leave; or
3. Wages in a period in which an employer is allowed for an employee work opportunity credit.

The credit is not available to employers receiving Small Business Interruption Loans.