Employee Retention Credit; The Treasury Department and the Internal Revenue Service today launched the Employee Retention Credit in order to facilitate many businesses that are financially affected by the Coronavirus (COVID-19) pandemic hit in USA. The key objective of the Employee Retention Credit for businesses is to encourage them to keep employees on their payroll. As per the details, the refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The Secretary at U.S. Treasury Department, Mr. Steven T. Mnuchin shared the statement on the launch of Employee Retention Credit for employers throughout the United States and said,
We encourage businesses to take full advantage of the Employee Retention Credit to keep employees on their payroll during these challenging times. This new credit is available to all employers, regardless of size of business, and covers up to 50 percent of up to $10,000 in wages.
What Is Employee Retention Credit?
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is enacted on March 27, 2020. CARES Act is designed to support Eligible Employers to keep employees on their payroll by availing an employee retention tax credit (Employee Retention Credit), despite experiencing economic hardship related to COVID-19. According to the Families First Coronavirus Relief Act (FFCRA), certain employers are required to pay sick or family leave wages to employees who are not capable to work or tele-work due to specific circumstances related to COVID-19. In such cases, eligible employers can get a refundable tax credit for the required leave paid, up to specified limits. Furthermore, the same wages cannot be counted for both credits.
Does My Business Qualify To Receive The Employee Retention Credit?
Employee Retention Credit is a Coronavirus tax relief credit which is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions of Employee Retention Credit availability, including State and local governments and their instrumentalities as well as those small businesses who take small business loans. Eligible employers to avail Employee Retention Credit with the IRS must belong to any of the following two categories:
- The employer’s business is fully or partially suspended by U.S. government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. If the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify for Employee Retention Credit after the end of that quarter.
The above parameters are calculated each calendar quarter.
How Is The ERC Calculated?
For the calculation of Employee Retention Credit, it is the amount of the credit is 50% of qualifying wages paid up to $10,000 in total. All those wages that are paid in between March 12, 2020 and before January 1, 2021 are eligible for the employee retention credit. Wages taken into account are not limited to cash payments, but also comprise of a share of the cost of employer provided health care.
How Is The Maximum Amount Of The ERC Available To Eligible Employers Determined?
The calculation of maximum amount of the Employee Retention Credit available to Eligible Employers is done with the help of qualified wages. The Employee Retention Credit equals 50 percent of the qualified wages (including qualified health plan expenses) that an Eligible Employer pays in a calendar quarter to its employees. $10,000 is set as the maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters. In this way, the maximum credit for qualified wages paid to any employee is $5,000.
What Are “Qualified Wages” For ERC?
On the basis of the average number of a business’s employees in 2019, the qualifying wages are determined. There are two criteria to know which wages qualify for Employee Retention Credit.
- Employers With Less Than 100 Employees:Employee Retention Credit is calculated on the basis of wages paid to all employees, regardless if they worked or not, in case if the employer had 100 or fewer employees on average in 2019. The employer still receives the credit if his employees worked full time and were paid for full time work.
- Employers With More Than 100 Employees: In case if the employer had more than 100 employees on average in 2019, then the Employee Retention Credit is allowed only for those wages that are paid to employees who did not work during the calendar quarter.
Is An Employer Required To Pay Qualified Wages To Its Employees Under The CARES Act?
NO, the employer is not required to pay qualified wages to its employees under the CARES Act. Furthermore, Eligible Employers may elect to not claim the credit for the Employee Retention Credit, as per their own choice. As per FFCRA, employees should be paid for sick or family leave wages by the employers if the employees are unable to work at office or home due to a COVID-19 circumstance. These employers may be entitled to a refundable tax credit for those wages paid, even if the employers may elect not to claim the credit.
Can Eligible Employers Claim The ERC For Qualified Wages Paid In March 2020?
YES, the eligible employers can claim the employee retention credit for qualified wages paid in March 2020. The Employee Retention Credit for qualified wages is applicable on the wages that the employers paid March 12, 2020, and before January 1, 2021. As a result, an Eligible Employer can claim the credit for qualified wages paid as early as March 13, 2020.
May An Eligible Employer Receive The ERC For Periods After December 31, 2020?
NO, the eligible employer cannot claim the Employee Retention Credit for periods after December 31, 2020. The reason is that the Employee Retention Credit is only available with respect to wages paid after March 12, 2020, and before January 1, 2021 by the eligible employer to employees.
How Do I Receive My Retention Credit If I Am An Eligible Employer?
Eligible employers for Employee Retention Credit can easily and immediately reimburse for the credit. For this purpose, they just need to reduce their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. Furthermore, Eligible employers will report their total qualified wages along with the associated health insurance costs for each quarter on their quarterly employment tax returns or Form 941, beginning with the second quarter. The employer may receive an advance payment from the IRS if the employer’s employment tax deposits are not sufficient to cover the credit. This advance payment can be received by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. If you need any help in filing Form 7200, make a free inquiry with Black Ink Team. We are working remotely to help you in this critical pandemic outbreak to claim your refundable tax credit for the qualified wages. An advance of the Employee Retention Credit can also be requested by the eligible employers by submitting Form 7200.
Where Can I Find More Information On The Employee Retention Credit For COVID-19 Economic Relief Efforts?
For further update and FAQ’s related to Employee Retention Credit, please visit IRS official link. Black Ink representative are working efficiently to update readers regarding the implementation of IRS COVID-19 tax relief programs. Stay connected with us to get more information on Coronavirus Tax Relief.