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March 31, 2020
The
Treasury Department and the Internal Revenue Service today launched the
Employee Retention Credit, designed to encourage businesses to keep employees
on their payroll. The refundable tax credit is 50% of up to $10,000 in wages
paid by an eligible employer whose business has been financially impacted by
COVID-19.
Does my business qualify to receive the Employee Retention
Credit?
The credit is available to all employers regardless of size,
including tax-exempt organizations. There are only two exceptions: State and
local governments and their instrumentalities and small businesses who take
small business loans.
Qualifying employers
must fall into one of two categories:
The employer's business
is fully or partially suspended by government order due to COVID-19 during
the calendar quarter.
The employer's gross receipts are below 50% of the comparable
quarter in 2019. Once the employer's gross receipts go above 80% of a
comparable quarter in 2019, they no longer qualify after the end of that
quarter.
These measures are
calculated each calendar 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 Jan. 1, 2021, are eligible for the credit. Wages
taken into account are not limited to cash payments, but also include a
portion of the cost of employer provided health care.
How do I know which wages qualify?
Qualifying
wages are based on the average number of a business's employees in 2019.
Employers with less than
100 employees: If the employer had 100 or fewer employees on average in 2019,
the credit is based on wages paid to all employees, regardless if they worked
or not. If the employees worked full time and were paid for full time work,
the employer still receives the credit.
Employers with more than
100 employees: If the employer had more than 100 employees on average in
2019, then the credit is allowed only for wages paid to employees who did not
work during the calendar quarter.
I am an eligible employer. How do I
receive my credit?
Employers can be
immediately reimbursed for the credit by reducing their required deposits of
payroll taxes that have been withheld from employees' wages by the amount of
the credit.
Eligible
employers will report their total qualified wages and the related health
insurance costs for each quarter on their quarterly employment tax returns or
Form 941 beginning with the second quarter. If the employer's employment tax
deposits are not sufficient to cover the credit, the employer may receive an
advance payment from the IRS by submitting Form 7200, Advance Payment of
Employer Credits Due to COVID-19.
Eligible employers can
also request an advance of the Employee Retention Credit by submitting Form
7200.
Where can I find more information on the Employer Retention
Credit and other COVID-19 economic relief efforts?
Updates on the implementation of this Employee Retention Credit,
Frequently Asked Questions on Tax Credits for Required Paid Leave and other
information can be found on the Coronavirus page of IRS.gov.
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