The Internal Revenue Service (IRS) and the Treasury Department have announced the Employee Retention Credit, a provision aimed at helping businesses financially impacted by the outbreak of coronavirus so they can keep their employees on their payroll.
Keep reading to discover how much can you expect to receive and what are the conditions to qualify for this credit.
How Much Is the Credit?
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?
The credit is geared towards businesses that are struggling because they had to suspend operations due to the coronavirus outbreak or because the lockdown has had a substantial impact on their revenue.
The qualifying businesses 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.
Regarding the second condition, 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 qualifying wages are determined considering the size of the business. There are two categories: businesses with 100 employees or fewer, and businesses with more than 100 employees.
- If the employer had 100 employees or fewer on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not.
- For employers with more than 100 employees on average in 2019, the credit is allowed only for wages paid to workers who did not work during the calendar quarter.
How Would I Receive my 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
The IRS’ response to COVID-19 changes constantly, so it’s important to stay updated. You can check the IRS website or this blog. It’s also a good idea to get advice from an expert who can help you get advantage of the relief initiatives unrolled by the government.
At Meadville Tax Services we have the know-how and the drive to assist you so you can file your taxes efficiently, limiting your tax liability while staying compliant with federal tax regulations.