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

  • The CARES Act allows eligible employers, including tax exempt organizations, to claim a refundable payroll tax credit for each calendar quarter equal to 50% of the qualified wages it pays to employees (up to a maximum of $10,000 per employee) during the COVID-19 crisis.
  • If the employer has a trade or business during calendar year 2020, they may claim a credit:
    • For any calendar quarter where the trade or business was fully or partially suspended operations during any calendar quarter due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19, or
    • For any calendar quarter within a period in 2020 where the trade or business first experienced a reduction in gross receipts of at least 50% compared to the same calendar quarter in 2019 and ending with the calendar quarter for which the gross receipts of such employer are greater than 80% compared to the same quarter in 2019.
  • The tax credit is limited to the employer’s applicable employment taxes for any calendar quarter and is claimed by offsetting the amount of the credit against the employer’s payroll tax deposit. To the extent the credit exceeds the amount of employment taxes due, such excess shall be treated as an overpayment that will refunded to the employer.
  • The amount of qualified wages for employers with less than 100 full time employees includes the amount of wages (including the employer’s qualified health plan expense allocation) that are paid while the business is either fully or partially shut down or during the period where the employer’s gross income was 50% for the same quarter of the prior calendar year until the employer’s gross income is greater than 80% for the same quarter of the prior calendar year. Employers with more than 100 full time employees are limited to the amount of wages that are paid while the business is either fully or partially shut down.
  • Employers that receive a loan under the Paycheck Protection Program are not eligible for the employee retention credit regardless of whether such loan is forgiven or not.
  • Additionally, any wages taken into account for purposes of determining the employee retention credit can’t be used to determine the tax credit allowed for paid family and medical leave.