On March 27, 2020 Congress overwhelmingly passed a $2 trillion emergency spending bill to assist those affected by the COVID-19 pandemic, which President Donald Trump quickly signed into law.
As part of the CARES Act, the Employee Retention Tax Credit, was included to assist employers struggling with the COVID-19 effects. This credit provides for an employer federal tax credit against the Social Security portion of payroll tax paid by the employer. This credit is available to employers who carried on a trade or business during 2020 and whose operations were fully or partially suspended due to a COVID-19 related shut-down or whose gross receipts declines by more than fifty percent compared to the same quarter in the previous year. Tax-exempt organizations are eligible for the credit, but governmental entities and companies in receipt of small business interruption loans under the CARES Act are not eligible. The act applies to wages paid from March 13, 2020 through December 31, 2020.
The tax credit is equal to fifty percent of the first $10,000 in qualified wages paid to each employee, up to a maximum tax credit of $5,000 per employee. For employers with one hundred or less full-time employees, all employee wages qualify for the credit. For employers who have greater than one hundred full-time employees, qualified wages are wages paid to employees when they are not providing services. Qualified wages do not include sick leave wages or family leave wages paid pursuant to the Families First Coronavirus Response Act. If the employer pays employee benefits that are greater than the amount the employer pays in the Social Security portion of payroll tax, the IRS will send the employer a check for the excess. Since the payroll tax credit is quarterly, the employer will have to forward the benefits to employees and then be reimbursed or employers can elect not to apply the new provision.
Our office will monitor COVID-19 updates closely and will send out additional announcements as we become aware of these updates. Please visit our website at https://thomas-and-company.com/covid-19/ for additional updates.