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Employee Retention Tax Credit: Does your business qualify?

The CARES Act contains multiple economic and tax incentives to retain employees. One of those is the Employee Retention Tax Credit. Eligibility is not determined based on employee count (e.g., there is no “less than 500” employee requirement) but businesses receiving Paycheck Protection Program loans are not eligible. An eligible employer, including tax-exempt organizations, qualifies if its operations are fully or partially suspended during any calendar quarter by order of appropriate governmental authority or experiences a significant decline in gross receipts. Credit candidates currently exist in Pennsylvania and across the country with non-essential businesses ordered to suspend operations. A significant decline in gross receipts begins with the first calendar quarter in 2020 in which the employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019. 

The credit offsets the employer portion of the social security tax and is refundable. Coordinate with your payroll provider/preparer. It applies to qualified wages paid after March 12, 2020 and before January 1, 2021. The credit equals 50% of qualified wages (including allocable qualified health plan expenses) per employee with qualified wages per employee limited to $10,000. The maximum credit per employee is thus $5,000. An employer who averaged 100 or fewer full-time employees in 2019 counts all qualified wages for all employees during the hardship period. An employer exceeding 100 full-time employees in 2019 can only count qualified wages for employees who are not providing services during the hardship period. Not providing services means the employer is paying its personnel who are not working, for one reason or another. This unfortunate limitation could minimize or eliminate credit potential for the employers exceeding 100 full-time employees during 2019.

A couple of other related notes: The Families First Coronavirus Response Act (FFCRA) provides a potential Paid Leave Tax Credit, which applies in addition to the Employee Retention Tax Credit but not using the same wages. For employers considering the Employee Retention Tax Credit, there are aggregation rules that treat related parties as a single employer so check those rules where applicable. 

As with other provisions of the CARES Act, the IRS has published a helpful set of FAQs on this credit. Visit their website here. The details are important so do your homework in consultation with your Sisterson representative and your payroll provider/preparer. 

If you have questions, contact your Sisterson representative or