On March 31, 2020, the Internal Revenue Service (IRS) launched the Employee Retention Credit for employers who have been impacted by COVID-19. Below are details about the credit:
- Designed to keep employees on the payroll.
- Available to all employers regardless of size, including tax-exempt organizations, except:
- State and local governments and their instrumentalities, and
- Small businesses who take small business loans.
- Qualifying employers must fall into one of two categories:
- Employer’s business is fully or partially suspended by government order due to COVID-19 during calendar quarter;
- Measures are calculated each quarter;
- Employer’s gross receipts are below 50% of the comparable quarter in 2019; or
- Once they go above 80% of a comparable quarter in 2019, no longer qualify after the end of quarter.
HOW IS THE CREDIT CALCULATED?
- The amount of the credit is 50% of qualifying wages, paid up to $10,000 in total.
- Wages paid after March 12, 2020 and before January 1, 2021 are eligible.
- Wages are not limited to cash payments, but also include a portion of the cost of employer provided health care.
WHAT WAGES QUALIFY?
- Based on the average number of business’ employees in 2019
- Less than 100
- Based on wages paid to all employees regardless if they worked or not
- More than 100
- Credit allowable only for wages paid to employees who did not work during the calendar quarter
- Less than 100
HOW DO YOU RECEIVE THE CREDIT?
- Employers can be immediately reimbursed by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
- Eligible employers must report their total qualified wages and health care costs per quarter on either:
- Quarterly employment tax returns, or
- Form 941 beginning 2nd quarter.
- If the employer’s employment tax deposits are not sufficient to cover the credit, employer may receive an advance payment from the IRS by submitting Form 7200.
Please contact your HSB Attorney or a member of the Employment Law team for additional information.