On March 31, 2020, the U.S. Treasury Department and Internal Revenue Service (IRS) announced the debut of the Employee Retention Credit to encourage organizations to keep employees on the payroll during the novel coronavirus pandemic.

The Employee Retention Credit is a refundable tax credit of 50 percent of up to $10,000 in wages paid by eligible employers negatively affected by COVID-19 related financial problems. Wages paid after March 12, 2020 and before January 1, 2021 are qualifying wages eligible for the Employee Retention Credit.

Qualifying wages are calculated based on the average number of employees at the organization in 2019. If the employer had 100 or fewer employees in 2019 on average: the credit is based on wages paid to all employees “regardless if they worked or not.” If the employer had over 100 employees in 2019 on average: the credit is only allowed for wages paid to workers who did not work during the calendar quarter.

Employers of all sizes may be eligible, including those who are tax-exempt. State and local governments, their instrumentalities, and small businesses “who take” small business loans are not eligible.

Eligible employers must fall into one of the following categories, which are calculated each calendar quarter:

  • Employers whose business is fully or partially suspended by government order due to COVID-19 “during the calendar quarter” or
  • Employers whose gross receipts are below 50 percent of the comparable 2019 quarter.

If the employer’s gross receipts rise above 80 percent of the comparable 2019 quarter, the employer is no longer eligible after the end of that quarter.

Employers can receive the Employee Retention Credit immediately by deducting the amount of the credit from the employer’s required deposits of payroll taxes withheld from employees’ wages.

Eligible employers must report the total amount of qualified wages for each quarter on quarterly employment tax returns (IRS Form 941) beginning on the second quarter. Advance payments may be available from the IRS by submitting Form 7200, available on the IRS website.

IRS “IRS: Employee Retention Credit available for many businesses financially impacted by COVID-19” https://www.irs.gov/newsroom/irs-employee-retention-credit-available-for-many-businesses-financially-impacted-by-covid-19 

Please Contact Linn T. Hodge & Sons for any COVID-19 Insurance related questions you have. We are tracking all the various resources available to our clients to help them during this challenging time.