- Learn more about the refundable employer retention credit.
- Find out how an employer qualifies for a retention tax credit.
- Learn about qualification categories for the credit.
- Discover how the credit may conflict with Paycheck Protection Loans.
- Learn about credit amount limits.
- Find out which wages qualify for the tax credit.
- Find out how employers can be reimbursed for payroll immediately.
- Learn how to receive an advance credit payment.
- Learn more about planning considerations for your business.
Fiducial has good news for business owners and workers! To help businesses retain employees and keep them employed during the COVID-19 crisis, Congress has provided a refundable employer retention credit! Available to all qualifying employers regardless of size, including tax-exempt organizations, the credit comes as a relief to many businesses. Employers must fall into one of two categories to qualify for the credit:
- Business Operations Curtailed: Eligible employers were carrying out a trade or business during 2020. Additionally, full or partial suspension of the operation of that business has occurred due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.
- Gross Receipts Declined 50%: Eligible employers have gross receipts equalling less than 50% of their gross receipts for the same quarter in 2019. Employers remain eligible until their gross receipts exceed 80% of their gross receipts for the same 2019 calendar quarter.
However, an employer who secures an SBA Paycheck Protection Loan becomes ineligible for the employer retention tax credit. A Paycheck Protection Loan is forgiven for wages paid during an 8-week period. So, participating in both programs leads to double dipping on CARES Act benefits. And that’s a no-no.
Which wages qualify for the tax credit?
The employer retention credit is a refundable payroll tax credit. The credit equals 50% of qualified wages up to a maximum wage of $10,000 per employee. Wages taken into account are those wages paid starting March 13, 2020 through December 31, 2020. These wages also include a portion of the cost of health care provided by the employer. No credit exists with respect to an employee in any period for which the employer is allowed a Work Opportunity Credit for that employee.
Wages based on the average number of a business’s employees in 2019 qualify.
- Employers with 100 or fewer employees: If the employer had 100 or fewer employees on average in 2019, Congress based the credit on wages paid to all employees, regardless of whether they worked. If the employees worked full time and received pay for full-time work, the employer still receives the credit.
- Employers with more than 100 employees: An employer that had more than 100 employees on average in 2019 may receive a credit only for wages paid to employees who did not work during the calendar quarter.
Wages do not include amounts for payroll credits provided for required paid sick leave. Neither do they include required paid sick leave or required paid family leave for which the government will reimburse the employer.
Reimbursement and advance payment
Employers can be reimbursed for the tax credit immediately by reducing their required deposits of payroll taxes 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. This reporting begins with the second quarter of 2020. 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. Employers must carefully consider which tax benefit or combination of tax benefits works best for their particular set of circumstances. And Fiducial can help! The choice between the retention credit and the SBA paycheck protection loans requires serious consideration, since a business cannot qualify for both.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more. Please contact Fiducial with questions to determine the best course of action for your business. Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!