The law on coronavirus aid, relief, and economic security Acts (the CARES Acts) contains a provision for the exemption of companies known as employee retention credit, a refundable tax credit for "qualified wages "paid to employees retained between March 13 and December 31, 2020.
The purpose of this provision is to encourage employers to keep their employees paid, even if they do not work during the period covered due to the effects of the coronavirus epidemic. Here is what you need to know as an employer to benefit from this section of the CARES law.
Key Points to Note:
• If your credits exceed the social charges, you can request reimbursement directly from the IRS.
• It is necessary to compare this loan with the PPP because it is not possible to take advantage of both, but as PPP applications are suspended, pending additional funding, pay special attention to this offer.
• The Employee Retention Credit offers a repayable loan of up to $ 5,000 for each full-time employee who holds between March 13 and December 31, 2020.
• You are eligible as an employer if you have to close in whole or in part or if your gross income is less than 50% in the same quarter of 2019.
• You can apply for the loan immediately by reducing the payroll taxes sent to the IRS.
To be eligible for this loan, you must complete business or trade by 2020, and either has had suspension of commercial activities, in whole or in part, during any quarter of the 2020 calendar, due to requests from a government authority. There was a "significant decrease in gross revenue" in a calendar quarter of less than 50% of gross revenue in the same quarter of 2019.
For example, if you own a restaurant that is required to close seated customers but is authorized to continue delivery, a management or delivery operation, that entitles you to a credit based on a partial closure related to the coronavirus. You are entitled to any quarter in which the government order was executed, up to four quarters in 2020.
The "significant reduction in gross revenue" test applies regardless of whether COVID-19 has affected your business or not. A qualifying period begins during any quarter in which revenues are less than 50% of revenues in the same quarter of 2019 and ends at the start of the first calendar quarter after the first quarter when gross revenues are greater than 80% gross revenue for this quarter in 2019.
Self-employed workers, government employers, or any small business receiving a Small Business Interruption Loan under the Payment Protection Program (PPP) are not eligible for this credit. Wages for which you have received sickness benefits and family leave under the Family First Coronavirus Response Act (Phase II) are not eligible.
Any salary covering this loan cannot be counted as part of the family loan and paid sick leave in accordance with article 45S of the Internal Revenue Code. An employee for whom a tax credit has been granted for employment opportunities per section 51 of the Federal Revenue Code cannot be counted for this credit.
The average number of full-time employees in 2019 determines which employees you can claim credit for. If you calculate an average of more than 100 full-time employees, you can only claim the wages of those you retain and are not working. If you have hired 100 workers or less, you can claim wages for all employees, whether or not they work. Employee retention credit applies only to full-time workers.
Credit amount:
The credit equals 50% up to $ 10,000 in eligible wages (including amounts paid for health insurance) per full-time employee for all eligible neighborhoods in the calendar starting March 13, and ending December 31, 2020, is equivalent to a maximum credit of $ 5,000 for each employee during this period.
The credit applies to your share of the employee's payroll taxes and is fully refundable. This means that the loan will serve as an overpayment and will be repaid after you deduct your share of these costs.
You can get an immediate repayment of at least part of the loan and request a deposit of any IRS balance, depending on the total loan amount. It is important to follow the steps below in order.
• Calculate the credit amount for the previous quarter and reduce your Form 941, the quarterly filing of the employer's federal income tax return by that amount. For example: if your credit for the first quarter of 2020 is $ 10,000 and the amount you intend to deposit is $ 15,000, reduce your deposit by $ 10,000 and deposit $ 5,000. This credit must be published on Form 941, which must be filed by April 30, 2020. You can claim your credit by deducting it from any amount, including federal income taxes, FICA employee taxes, and your FICA tax rate for all employees up to the amount of the ready.
• Starting in the second quarter of 2020, if the first quarter credit exceeds the source deduction, you can receive an advance payment from the IRS by submitting form 7200 before the employer credits due to COVID-19. Form 7200 can be submitted at any time during the month following the quarter for which it was requested. For example: if your credit for the first quarter of 2020 was $ 18,000 and the amount you had to deposit was $ 15,000, your credit will eliminate the deposit and leave an additional credit of $ 3,000 which you can request anytime in April 2020, when submitting Form 7200 Note: The IRS has not yet commented on the return date of Form 7200.
Repeat steps 1 (and 2, if applicable) for each quarter of 2020 for which you are eligible for a credit.
The Employee Retention Credit and Payment Protection Program provide financial support to businesses that retain their employees. Unfortunately, you cannot take advantage of both. You must choose one. Read and compare the benefits of this program with those of the PPP. We recommend that you find out which program provides the most practical support for you and your employees, including determining your eligibility for both programs and the funds you need.
Freddie Cook, CPA