As discussed in our article on March 30, “2020 CARES Act - The Employee Retention Credit”, the CARES Act (the Act) provided for a new employer payroll tax credit known as the Employee Retention Credit (ERC). The credit is designed to assist eligible employers who have kept employees on their payroll despite experiencing economic hardship resulting from the economic impacts of the COVID-19 virus.
To recap, the ERC is a fully refundable tax credit for employers equal to 50 percent of qualified wages paid after March 12, 2020 and before January 1, 2021 (including allocable qualified health plan expenses) that eligible employers pay their employees. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000. Critically, an employer may not receive the ERC if the employer receives a Paycheck Protection Program (PPP) loan that is authorized under the Act. An eligible employer that receives a PPP loan, regardless of the date of the loan, cannot claim the ERC.
The Internal Revenue Service subsequently issued preliminary guidance through 15 “Frequently Asked Questions” or FAQs. This guidance laid some basic groundwork, but left many issues unaddressed. Late yesterday, the IRS significantly increased the amount of guidance and redesigned its web pages addressing the ERC. The ERC FAQs include the following topics:
Determining Which Employers are Eligible to Claim the Employee Retention Credit
Determining Which Entities are Considered a Single Employer Under the Aggregation Rules
Determining What Types of Governmental Orders Related to COVID-19 May be Taken into Account for Purposes of the Employee Retention Credit
Determining When an Employer’s Trade or Business Operations are Considered to be Fully or Partially Suspended Due to a Governmental Order
Determining When an Employer is Considered to have a Significant Decline in Gross Receipts
Determining the Maximum Amount of an Eligible Employer’s Employee Retention Credit
Determining Qualified Wages
Determining the Amount of Allocable Qualified Health Plan Expenses
How to Claim the Employee Retention Credit
Interaction with Other Credit and Relief Provisions
Special Issues for Employees: Income and Deduction
Special Issues for Employers: Income and Deduction
Special Issues for Employers: Use of Third Party Payers
We are analyzing the FAQs in more detail and will provide more comprehensive guidance soon. In the meantime, if you have questions regarding this or other COVID-19 issues, please don’t hesitate to contact your Schneider Downs tax advisor.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.