Employee retention credit (CARES Act)

Learn more about the COVID employee retention credit, including who qualifies for the credit and how to claim it.

June 26, 2020

Employee retention credit FAQs (Originally published in the May 20, 2020 edition of TAX in the News)

The IRS is continuing to add FAQs to clarify various aspects of the employee retention credit and other COVID-19 related employer relief.

An eligible employer may treat health plan expenses paid or incurred after March 12, 2020 and before January 1, 2021 as qualified wages for employee retention credit purposes. For employers with 100 or fewer employees, health plan expenses count as qualified wages whether or not employees are working and paid wages. For employers that average more than 100 employees, health plan expenses count as qualified wages only during the time employees are not providing and being paid for services. In any case, qualified wages for the credit are subject to a $10,000 per employee maximum.

See more info on IRS.gov: FAQs (see FAQs 64 and 65)

Employee retention credit information (Originally published in the April 1, 2020 edition of TAX in the News)

The employee retention credit applies to businesses that have:

  • Fully or partly suspended operations because of a government-ordered shutdown during the calendar quarter, or
  • Gross receipts that have fallen below 50% of receipts in the comparable quarter in 2019.

The employee retention credit is a refundable credit of 50% of the qualifying wages (including the cost of health insurance) paid by the affected employer to an eligible employee. For employers with more than 100 employees, continued pay must be to employees who did not work because of one of the above two reasons. For employers with 100 or fewer employees continued pay may be to all employees, whether they worked or not.

  • Unlike the required qualified sick leave and family leave rules, continued pay is not mandatory.
  • Wages used to claim the qualified sick leave and family leave credits may not be used to claim the employee retention credit.
  • Employers receiving emergency small business loans may not claim this credit. However, an employer that takes and timely repays a Payroll Protection Program (PPP) loan within the safe harbor can be eligible.

Paying for leave. Similar to the qualified sick and family leave credits, employers can be immediately reimbursed for the credit by reducing their required deposits of withheld income taxes, security and Medicare taxes plus the employer’s share of Medicare taxes. If retained taxes are not sufficient to cover the credit, the employer may receive an advance payment by submitting a new Form 7200 to the IRS.

 

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