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Employee Retention Credit for Employers Subject to Closure Due to COVID-19

The employee retention credit is a fully refundable tax credit equal to 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. This tax credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum credit for qualified wages paid to any employee is $5,000.

Eligible employers The credit is available to employers regardless of size, including tax-exempt organizations. There are two exceptions: (1) state and local governments and their instrumentalities; and (2) businesses who are recipients of the Payroll Protection Program (PPP) loans through the SBA.

Qualifying employers must fall into one of the following two categories:
  • The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  • The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

    These measures are calculated each calendar quarter.
Credit calculation The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but may also include a portion of the cost of employer provided health care
Qualified wages Qualifying wages are based on a business’s average number of employees in 2019
  • Employers with 100 or fewer employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless of whether they worked
  • Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter. These employers can 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
Receiving the credit Employers can be reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employee’s wages by the amount of the credit. Employers will report their total qualified wages for each quarter on their Form 941 quarterly tax returns beginning with the second quarter
  • Credit excludes paid sick leave or paid family leave wages paid under the FFCRA
  • Employers that receive the PPP loan are not eligible for the Employee Retention Credit for Closures Due to COVID-19

Additional Information on the Employee Retention Credit can be found at:
     Employee Retention Credit
     FAQs: Employee Retention Credit under the CARES Act
     Coronavirus Tax Relief for Businesses and Tax-Exempt Entities

This information is only a brief summary and provided as a courtesy to assist in your understanding of the subject matter covered and on the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available.

Consult experienced counsel and/or tax advisors for legal advice prior to implementing any credit strategies related to COVID-19 relief efforts.
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