Another provision provided in the March 27th CARES Act to help businesses keep their employees on payroll is the Employer Retention Credit (ERC). The ERC provides a refundable tax credit for eligible employers against federal employment taxes equal to 50% of qualified wages paid to employees between March 12, 2020 and December 31, 2020. Below is a summary of how the credit works.
- Who is an “eligible employer”? Eligible employers are businesses and tax-exempt organizations that experience one of the below:
- A full or partial suspension of the business operations during any calendar quarter of 2020 because of a government order limiting commerce, travel, or group meetings due to COVID-19
- A significant decline in gross receipts (see below)
- What is considered a significant decline in gross receipts?
- Gross receipts decline more than 50% for a calendar quarter in 2020 compared to the same quarter in the prior year.
- The significant decline in gross receipts ends on the first day following the quarter in which gross receipts are more than 80% of the gross receipts in the same quarter in the prior year.
- What are “qualified wages”?
- For employers with less than 100 full-time employees in 2019, qualified wages are wages and health care costs, up to $10,000 per employee, paid during the period of suspended operations or decline in gross receipts, regardless of whether or not the employee is still working.
- For employers with more than 100 full-time employees in 2019, qualified wages are the wages and health care costs, up to $10,000 per employee, paid to employees not providing services because operations were suspended or due to the decline in gross receipts.
- How do employers claim the credit?
- Employers get immediate access to the credit by reducing employment tax deposits by the amount of the credit.
- If payroll tax deposits are not sufficient to cover the credit, employers can receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
- The ERC is reported on the employer’s quarterly Form 941.
- Can I claim the ERC and other relief provisions for businesses?
- If an employer receives a Paycheck Protection Program loan, they are NOT eligible for the ERC.
- If an employer receives a tax credit for paid sick and family leave, they are not eligible for ERC for the same wages.
- Employees are not counted if the employer is allowed a Work Opportunity Tax Credit for that employee
- The Social Security tax deferral is also available for employers claiming the ERC.
It is important to note that there are multiple provisions available for small businesses and self-employed individuals that have suffered losses due to COVID-19 and who are trying to retain employees during this time. In some cases, the use of more than one provision is allowed and in others, it is not. We strongly recommend that a business owner consults with their accounting and/or tax advisors for assistance in choosing the proper program that fits their circumstances. If you would like to reach out to a HAS team member for help, please contact us.