Read this if you are an employer that may have to close, or has closed, due to COVID-19.
Here is a brief recap of definitions and explanations of employee retention credits found in the CARES Act. If you have questions about your specific situation, please don’t hesitate to contact us. We’re here to help.
Eligible employer
The term ‘‘eligible employer’’ means any employer:
(i) |
that was carrying on a trade or business during calendar year 2020, and |
(ii) |
with respect to any calendar quarter, for which... |
|
a. |
the operation of the trade or business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID–19), or |
|
b. |
such calendar quarter where there is a significant decline in gross receipts... |
|
|
i. |
beginning with the first calendar quarter in 2020, for which gross receipts for the calendar quarter are less than 50 percent of gross receipts for the same calendar quarter in the prior year, and |
|
|
ii. |
ending with the calendar quarter for which gross receipts of such employer are greater than 80 percent of gross receipts for the same calendar quarter in the prior year. |
For tax-exempt organizations described in section 501(c) of the Internal Revenue Code and exempt from tax under section 501(a) of such Code, clauses (i) and (ii)(a) shall apply to all operations of such organization.
Generally, all organizations treated as a single employer under the controlled group or affiliated service group rules will be treated as one employer for purposes of this section.
If an eligible employer participates in the Paycheck Protection Program, such an employer is not eligible for the employee retention credits.
Amount of credit
There shall be allowed, as a credit against applicable employment taxes for each calendar quarter, an amount equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.
The amount of qualified wages with respect to any employee which may be taken into account by the eligible employer for all calendar quarters shall not exceed $10,000 (i.e., the maximum credit is $5,000 per employee).
If the credit exceeds the applicable employment taxes on the wages paid for such calendar quarter, such excess shall be treated as an overpayment that shall be refunded.
Qualified wages
The term ‘‘qualified wages’’ means:
(i) |
in the case of an eligible employer for which the average number of full-time employees (as defined by the Affordable Care Act Employer Mandate Provisions) employed by such eligible employer during 2019 was greater than 100: |
|
a. |
wages paid by such eligible employer with respect to which an employee is not providing services due to the suspension of the business or a drop in gross receipts circumstances, or |
(ii) |
in the case of an eligible employer for which the average number of full-time employees (as defined by the Affordable Care Act Employer Mandate Provisions) employed by such eligible employer during 2019 was not greater than 100: |
|
a. |
all wages paid by an eligible employer when shut down and each quarter where there was a sharp decline in year-over-year receipts. |
Wages do not include amounts paid under the expanded sick/family leave provisions of the FFCRA.
Qualified wages paid or incurred by an eligible employer with respect to an employee who is not providing services may not exceed the amount such employee would have been paid for working an equivalent duration during the 30 days immediately preceding leave.
The term ‘‘qualified wages’’ shall include so much of the eligible employer’s qualified health plan expenses as are properly allocable to such wages.
CARES Act: Payroll tax payment delay
An extension of time to remit payroll taxes for the period beginning March 27, 2020 and ending before January 1, 2021 over a two-year period is allowed, with half due by December 31, 2021, and the remainder due by December 31, 2022.
If an eligible employer participates in the payroll tax delay programs, such an employer is not eligible for the employee retention credits.