The Employee Retention Credit has been launched by the Treasury Department and the Internal Revenue Service this week. The credit is aimed at encouraging businesses to keep employees or payroll and are available immediately by companies reducing their deposits for payroll taxes.
The credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. All employers qualify for the credits, except state and local governments and their instrumentalities and small businesses who take small business loans.
To qualify, businesses must fall into one of these categories: The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. Its gross receipts are less than 50 percent of the comparable quarter last year. If these rise above 80 percent of a comparable quarter in 2019, the employer ceases to qualify at the end of the quarter.
Wages include a portion of the cost of employer-provided health care and are for wage paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit.
These are based on the average number of employees last year. For businesses with 100 or fewer employees, the credit is applied to wages paid to all employees, whether they worked or not. Credits for larger companies are allowed only for wages paid to employees who did not work during the calendar quarter.
Wages and related health insurance costs are reported on quarterly employment tax returns or Form 941 beginning with the second quarter If the 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.
