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Employee Retention Credit for Employers

This is a quarterly payroll tax credit:

  1. For 50% of wages paid
  2. By eligible employers
  3. To eligible employees
  4. During the Covid-19 crisis
  5. NOT APPLICABLE to employers receiving Small Business Interruption Loans under this Act
  6. Determined on a quarter by quarter basis

Eligible employers:

  1. Employers whose operations have been suspended or partially suspended due to limitations imposed on commerce, travel, or group meetings due to the Covid-19 virus.
  2. Employers who have experienced a 50% reduction in quarterly gross receipts based on a year by year comparison (e.g. between first quarter 2019 vs first quarter 2020). In such quarter as 2020 gross receipts equal 80 per cent or greater than the prior year gross receipts such credit shall be unavailable.

Eligible employees:

  1. For employers with an average of 100 or fewer employees throughout 2019 – all employee wages are eligible for the credit.
  2. For employers with an average of 101 or more employees throughout 2019- only employees that have received a paid furlough or had their hours reduced. There is no maximum here.

Wages paid (including health benefits) but not to exceed $10,000 for the year.

Example: If two eligible employees receive $15,000 and $5000 in wages respectively in quarter 1. The credit is based upon wages of $10,000 and $5000 for that quarter. If the same facts exist in quarter 2, there is only $5000 of wages available for the credit. The wages of the first employee have been utilized to the maximum in quarter 1. The wages of the second employee are maxed out in quarter 2 ($5000 + $5000).

What if the employee hours are reduced in one quarter but increased in a subsequent quarter? Is there an offset? This has not been addressed.

Effective dates: For wages paid between March 12, 2020 and Dec 31, 2020.

Exceptions:

  1. Not applicable to employees for which the employer is receiving a Work Opportunity Credit
  2. Not applicable to wages taken into account for:
    1. Payroll credit for required paid sick leave
    2. Payroll credit for required paid family leave
    3. IRC Sec 45S – employer credit for paid family and medical leave

The IRS may not impose penalties for employers who do not deposit sufficient payroll tax in anticipation of the credit. Also, the IRS may advance payments to eligible employers.

 

 

 

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