As part of a series of provisions to offer financial relief to those affected by the outbreak of coronavirus, The Internal Revenue Service (IRS) and the Treasury Department have announced the Employee Retention Credit.
This measure is geared towards helping struggling businesses, so they can keep their employees on their payroll. The amount of the Employee Retention Credit is equal to 50% of qualifying wages paid up to $10,000.
Wages paid after March 12, 2020, and before January 1, 2021 are eligible. The wages taken into account include as well as portion of the cost of employer provided health care.
What Businesses Qualify for the Employee Retention Credit?
The credit aims to provide relief to businesses and tax-exempt organizations that are struggling because they had to suspend operations due to the coronavirus outbreak or because they have been negatively impacted by the lockdown.
Therefore, the qualifying organizations fall into two basic categories:
- The business has been totally or partially suspended by government order due to the coronavirus outbreak during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019.
It’s important to keep in mind that once your receipts go above 80% of a comparable quarter in 2019, you no longer qualify for the credit.
What Wages Qualify?
The wages that qualify for the Employee Retention Credit are determined in base of the size of the business. Two categories of businesses are considered: businesses with 100 employees or fewer, and businesses with more than 100 employees.
- Employers that had 100 employees or fewer on average in 2019. In this case the credit is based on wages paid to all employees, regardless if they worked or not.
- Employers with more than 100 employees on average in 2019. For them, the credit is allowed only for wages paid to workers who did not work during the calendar quarter.
How Would I Receive the Employee Retention Credit?
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ taxes by the amount of the credit.
If your tax deposits are not enough to cover the credit, then you may receive an advance payment by submitting form 7200 to the IRS
You can find more detailed information about the Employee Retention Credit on the official IRS website, Don’t forget to follow our blog for more topics related to the coronavirus outbreak, from tax relief efforts to tax scams.
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