What You Need to Know
COVID-19 Employee Retention Tax Credit
Enacted March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides an employee retention credit to employers that keep employees on their payroll amid an economic hardship due to the novel COVID-19.
ERTC Overview
The employee retention tax credit is a broad based refundable tax credit designed to encourage employers to keep employees on their payroll.
State and local governments and small businesses who take Small Business Loans are not eligible for this credit.
Qualified payments limited to $10,000 per employee through December 31, 2020. May not use the same wages for a Work Opportunity Tax Credit (WOTC) calculation.
Wages must not be more than the amount the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period.
May not claim the credit if the employe receives a Paycheck Protection Plan (PPP) forgivable loan under the CARES Act.
How much is the credit?
50%
of the first $10,000 in wages and healthcare costs paid by the employer
Who qualifies?
All employers regardless of size
that meet one of two qualifications:
1. Business was fully or partially suspended by government order due to COVID-19 during the calendar quarter
OR
2. The employer's gross receipts are below 50% of the same quarter in 2019
What wages qualify?
The first $10,000
in wages and healthcare costs paid between March 13 and December 31, 2020 to employees who did not work during that period. (If 100 employees or fewer, the credit is based on wages paid to all employees regardless of whether they actually worked or not.)
How will I be paid?
Offset of all withheld federal employment taxes:
Employer FICA and Medicare
Employee FICA and Medicare
Federal Income Tax Withholding
Excess credit will be refunded:
Cash refunds
Advance tax payments
Frequently Asked Questions
Any employer, regardless of size, is eligible for the credit during calendar year 2020 if the business: (1) is fully or partially suspended due to a governmental order related to COVID-19, or (2) experiences a significant decline in gross receipts (i.e., a reduction of 50 percent of gross receipts from the same quarter in 2019).
The credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to the circumstances described in (1) above. The credit generally does not apply to governmental employers, including the U.S. Government, state and local governments, or any agency of the foregoing.
Yes. The credit only applies to qualified wages paid by a business whose operations have been fully or partially suspended pursuant to a governmental order related to COVID-19, or have experienced a significant decline (i.e., 50 percent) in gross receipts, as described above, during the period from March 13, 2020 through December 31, 2020.
No. For eligible employers with 100 or fewer full-time employees, the credit applies to all employee wages. In contrast, eligible employers with greater than 100 full-time employees may only take into account qualified wages paid to employees when they are not providing services due to a governmental order related to COVID-19.
No. The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer. The IRS is expected to provide guidance regarding the process for claiming the credit and receiving the refund.
If the business claims the FFCRA credit for mandatory sick leave and/or family leave, the wages associated with the FFCRA credit are not eligible as qualified wages for the employee retention credit. This prevents both credits from applying to the same wages paid by an employer.
No. As long as the employer meets the requirements for the credit (described in the Q&As above), the employer does not have to repay the credit or the resulting refunds.
Frequently Asked Questions
Any employer, regardless of size, is eligible for the credit during calendar year 2020 if the business: (1) is fully or partially suspended due to a governmental order related to COVID-19, or (2) experiences a significant decline in gross receipts (i.e., a reduction of 50 percent of gross receipts from the same quarter in 2019).
The credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to the circumstances described in (1) above. The credit generally does not apply to governmental employers, including the U.S. Government, state and local governments, or any agency of the foregoing.
Yes. The credit only applies to qualified wages paid by a business whose operations have been fully or partially suspended pursuant to a governmental order related to COVID-19, or have experienced a significant decline (i.e., 50 percent) in gross receipts, as described above, during the period from March 13, 2020 through December 31, 2020.
No. For eligible employers with 100 or fewer full-time employees, the credit applies to all employee wages. In contrast, eligible employers with greater than 100 full-time employees may only take into account qualified wages paid to employees when they are not providing services due to a governmental order related to COVID-19.
No. The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer. The IRS is expected to provide guidance regarding the process for claiming the credit and receiving the refund.
If the business claims the FFCRA credit for mandatory sick leave and/or family leave, the wages associated with the FFCRA credit are not eligible as qualified wages for the employee retention credit. This prevents both credits from applying to the same wages paid by an employer.
No. As long as the employer meets the requirements for the credit (described in the Q&As above), the employer does not have to repay the credit or the resulting refunds.
We're here to help you navigate the ins and outs of the Employee Retention Tax Credit.
Contact us today to maximize your COVID-19 credit.
