What is the Employee Retention Credit under the CARES Act?April 16, 2020
Do you have questions on the employee retention credit under the Coronavirus Aid, Relief and Economic Security Act? Here, we answer some frequently asked questions.
Wondering how you can benefit from the employee retention credit under the CARES Act?
The employee retention credit is useful for those who don’t apply for an economic injury disaster loan or the paycheck protection program. If a loan is taken under either the EIDL or PPP, the business would not be eligible for this credit.
Here are some frequently asked questions and answers in the event you do qualify for the credit.
What is the employee retention credit?
It is a fully refundable tax credit for employers that applies to qualified wages paid after March 12, 2020 and before January 1, 2021. The maximum amount of qualified wages taken into account is $10,000 with a maximum credit of $5,000 per employee.
What employers are eligible?
Those that carry on a trade or business during calendar year 2020 including tax exempt organizations that either:
- Fully or partially suspend operations due to an order from an appropriate governmental authority limiting commerce, travel or group meetings due to the pandemic or
- Experience a significant decline in gross receipts- This happens when an employer’s gross receipts for a calendar quarter in 2020 are less than 50% of its gross receipts for the same calendar quarter for the previous year, and
- Did not receive loans under the EIDL or PPP programs.
When is the operation of a trade or business partially suspended?
The partial suspensions may arise if an appropriate governmental authority imposes restrictions upon the business operations by limiting commerce, travel or group meetings such that the operation can continue but not at its normal capacity.
How is the credit amount determined?
The credit is 50% of qualified wages, paid in a calendar quarter. Qualified wages are wages and compensation paid by an eligible employer to employees after March 12, 2020 and before January 1, 2021. This includes qualified health plan expenses.
If the eligible employer had more than 100 full-time employees in 2019, qualified wages are wages paid to an employee for time that he/she is not providing services due to a full or partial suspension of operations or a significant decline in gross receipts. If the employer had 100 FTEs or less in 2019, qualified wages are any wages paid to any employee during a period of economic hardship.
Can eligible employers (EE) claim the credit for wages paid in March 2020?
EEs can claim the credit for qualified wages they pay after March 12, 2020 and before January 1, 2021.
What makes the credit fully refundable?
The EE may get a refund if the amount of the credit is more than certain federal employment taxes the EE owes. For any calendar quarter the amount of the credit the EE is entitled to exceeds the employer portion of the social security tax on all wages paid to all employees, then the excess is treated as an overpayment and refunded to the employer under sections 6401(a) and 6413(a) of the code.
How does an EE claim the credit?
EEs report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, typically Form 941, Employer’s Federal Tax Return.
Wondering how you can qualify for the employee retention credit? Contact us.
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