April 13, 2020

Coronavirus Aid, Relief, and Economic Security Act Employee Retention Credit: What is it and Does My Business Qualify?

What is the CARES Act Employee Retention Credit?

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. The credit is up to $5,000 per employee. The credit is calculated at 50% of Qualified Wages, up to $10,000 in wages. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.

Does My Business Qualify?

It might!  Be aware that if your business claims a PPP Loan it will not be eligible for the ERTC. The ERTC does provide a mechanism for some relief for organizations that were unable to claim a PPP Loan for whatever reason. Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar year 2020, including a tax-exempt organization, that either:

Fully or partially suspends 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; or experiences a significant decline in gross receipts during the calendar quarter. A significant decline in gross receipts begins with the first quarter in which an employer’s gross receipts for a calendar quarter in 2020 are less than 50 percent of its gross receipts for the same calendar quarter in 2019. The significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter for which the employer’s 2020 gross receipts for the quarter are greater than 80 percent of its gross receipts for the same calendar quarter during 2019. Learn how to calculate the economic impact HERE.

What do you mean by “refundable”?

The credits are fully refundable because the Eligible Employer may get a refund if the amount of the credit is more than certain federal employment taxes the Eligible Employer owes.  That is, if for any calendar quarter the amount of the credit the Eligible Employer is entitled to exceeds the employer portion of the social security tax on all wages (or on all compensation for employers subject to RRTA) paid to all employees, then the excess is treated as an overpayment and refunded to the employer. Consistent with its treatment as an overpayment, the excess will be applied to offset any remaining tax liability on the employment tax return and the amount of any remaining excess will be reflected as an overpayment on the return.

For more information, speak with your accountant or visit the IRS’s website.

If you have any questions please contact Leah Archibald.