Taxlete Today

  • Facebook
  • LinkedIn
  • Twitter

Important tax news and information collected from the Internal Revenue Service and other trusted sources, disseminated in a manner to address the needs of the average taxpayer.

#StayInformed  #BeEmpowered  #Thrive

As a reminder, Taxlete and MyTaxRights.org are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any government entity. External links are provided solely for convenience and informational purposes only. Always check the official government source for the latest information and updates.

Businesses should be aware of the Employee Retention Tax Credit

The Employee Retention Credit is a refundable tax credit employers can use against certain employment taxes. The credit allows eligible employers to receive up to 50 percent of the qualified wages paid to employees (including certain health plan costs) between March 12, 2020 and January 1, 2021, limited to a maximum of $10,000 per employee.


Employers struggling in the midst of the COVID-19 pandemic can receive immediate access to the Employee Retention Credit by reducing employment tax deposits they are otherwise required to make. If the reductions in employment tax deposits are not sufficient to cover the credit, employers may also request an advance credit payment from the IRS by submitting IRS Form 7200 (Advance of Employer Credits Due To COVID-19.



Employer Eligibility

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and either:

  1. Experience the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19; or

  2. Experience a significant decline in gross receipts. 

Determining a Significant Decline in Gross Receipts

A significant decline in gross receipts begins:

  • On the first day of the first calendar quarter of 2020 for which an employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019.

For example, if an employer had $50,000 in gross receipts during the second quarter of 2019 (April 1st through June 30th), but only $15,000 in gross receipts during the second quarter in 2020, then the employer's significant decline in gross receipts began in the second quarter of 2020.


The significant decline in gross receipts ends:

  • On the first day of the first calendar quarter following the calendar quarter in which gross receipts are more than of 80% of its gross receipts for the same calendar quarter in 2019.

An employer may claim the Employee Retention Credit for the period it experiences a significant decline in gross receipts (or for the duration of any calendar quarter in which operations were suspended due to COVID-19).


Qualified wages

The definition of qualified wages depends on an employer's total number of full-time employees.


More than 100 full-time employees

If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally defined as those wages paid to employees (up to $10,000 per employee) who are not providing services because either: (a) operations were suspended; or (b) the employer experienced a significant decline in gross receipts. These employers may only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.


100 full-time employees or less

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are defined as those wages paid to any employee (up to $10,000 per employee) during either: (a) the period operations were suspended; or (b) the period of significant decline in gross receipts, regardless of whether or not its employees are providing services.


Claiming the Employee Retention Credit

In order to claim the new Employee Retention Credit, eligible employers must report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns---IRS Form 941 for most employers---beginning with the second quarter. The credit is offset against the employer's share of social security tax but any excess is refundable to the employer under normal circumstances.


In anticipation of claiming the credit, employers are allowed to retain a percentage of employment taxes, up to the amount of the credit, that they would otherwise be required to deposit with the IRS (e.g., federal income tax withholding, the employees' share of social security and Medicare taxes, and the employer's share of social security and Medicare taxes). Note, however, employers must also take into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act


Eligible employers can also request an advance of the Employee Retention Credit by submitting IRS Form 7200 (Advance of Employer Credits Due To COVID-19.


Impact of other credit and relief provisions

An eligible employer's ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:

  • An employer is not eligible for the Employee Retention Credit if the employer received a Small Business Interruption Loan under the Paycheck Protection Program.

  • Qualified wages for the Employer Retention Credit do not include wages that were already counted towards the tax credit for paid sick and family leave under the Families First Coronavirus Response Act.

  • Qualified wages counted for the Employee Retention Credit cannot also be counted for the tax credit for paid family and medical leave under Section 45S of the Internal Revenue Code.

  • An employee cannot be counted for this credit if the employer is allowed a Work Opportunity Tax Credit under Section 51 of the Internal Revenue Code for the employee.

For more information, see the following resources:

Comments or Suggestions?

Please take a moment to tell us what you like or dislike about MyTaxRights.org, and let us know if there is any other tax related content you would like to see on the site.

Contact us at support@taxlete.org

Important Notices:

  • Facebook
  • LinkedIn
  • Twitter

© 2020 Taxly, LLC. All rights reserved. Taxlete and MyTaxRights.org are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any government agency. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. Self-help services may not be permitted in all states. External links are provided solely for convenience and informational purposes only. Taxlete bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.