- The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.
- This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
- The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
- Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar year 2020 that either:
- Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; (See IRS FAQ #3 here, and FAQs #30-38 here); or
- Experience a decline of more than 50% in gross receipts during the calendar quarter, compared to the same calendar quarter in the previous year (See IRS FAQ #4 here).
- If the Eligible Employer averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship described in (1) and (2) above.
- For employers with more than 100 full-time employees, qualified wages include wages paid to employees when they are not providing services due to a governmental order related to COVID-19. If an employee is performing services on a reduced schedule, wages paid to the employee are only treated as qualified wages if they exceed what the employee would have otherwise been paid for the services performed. In that case, employers will receive a credit for the difference between the total wages paid to the employee and the amount the employer would have paid for the reduced hours or services actually provided by the employee.
- The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer.
- The IRS has issued a new Form 7200 to claim those credits.
- An Eligible Employer may receive both the tax credits for the qualified leave wages under the FFCRA and ERC under the CARES Act, but not for the same wages. The amount of qualified wages for which an Eligible Employer may claim the Employee Retention Credit does not include the amount of qualified sick and family leave wages for which the employer received tax credits under the FFCRA.
- An Eligible Employer that receives a paycheck protection loan cannot claim Employee Retention Credits.
April 7 Update: The IRS has issued guidance that if you paid any qualified wages between March 13, 2020, and March 31, 2020, inclusive, you will claim the employee retention credit for 50% of those wages together with 50% of any qualified wages paid during the second quarter of 2020 on your second quarter Form 941, 941-SS, or 941-PR. Do not include the credit on your first quarter Form 941, 941-SS, or 941-PR.
We will continue to update you as we get more information on Coronavirus-related legislation and guidance that may impact you. Continue to check back here for the most up to date tax information and changes in response to Coronavirus. If you have more questions contact an MCB Advisor at 703-218-3600 or click here.
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