COVID-19 Employer Tax Credit under the CARES ActLast Update 7/7/2020 – We are continuing to monitor and update this blog as information is released.

On March 31, the IRS released a series of FAQ’s and information regarding the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Most importantly, they released some information regarding the employer tax credits associated with this Act.

Note that this is unrelated to the dollar-for-dollar payroll tax credit that can be taken for Families First Coronavirus Response Act (FFCRA) leave. Employers cannot use the same wages towards the FFCRA tax credit and the CARES Act tax credit outlined below. Learn more about the FFCRA tax credit here.

CARES Act Employer Tax Credit

In case you are unfamiliar with the CARES Act, it is specifically designed to encourage eligible employers to keep employees on their payroll during the COVID-19 pandemic. By doing so, the employer could receive a retention credit equal to 50% of qualified wages paid. The maximum amount of qualified wages paid per employee for a calendar quarter is $10,000, so the maximum credit per employee per quarter is $5,000. The total maximum amount of credit an employer can take this year is $10,000. This credit extends from March 12, 2020 to January 1, 2021.

The IRS released information regarding the CARES Act employer tax credit on the Quarterly 941 and they state, “The Coronavirus Aid, Relief, and Economic Security (CARES) Act supports certain employers that operate a business during 2020 and retain employees, despite experiencing economic hardship related to the COVID-19 crisis, with an employee retention credit. The refundable tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020, and before January 1, 2021. If you paid any qualified wages between March 13, 2020, and March 31, 2020, inclusive, you will include 50% of those wages together with 50% of any qualified wages paid during the second quarter of 2020 on your second quarter Form 941, 941-SS, or 941-PR to claim the employee retention credit. Do not include the credit on your first quarter Form 941, 941-SS, or 941-PR.”

Note that any employer who receives a loan through the Paycheck Protection Program (PPP) under the FFCRA cannot also claim the Employee Retention Tax Credit.

Any qualified wages paid from March 12 to March 30, will be added to your Quarter 2 Form 941. They will not be added to your Quarter 1 Form 941. This is regarding the CARES Act only.

The IRS has released the final version of the new Form 941, along with instructions.

Is My Company Eligible for the Employee Retention Tax Credit?

Your company (including tax-exempt organizations) would be considered eligible if, during calendar year 2020, your business either:

  • Fully or partially suspended operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.

Government employers are not eligible. Self-employed individuals are not eligible for their own self-employment earnings, though they may be able to claim the credit for wages paid to their employees. Tribes or tribal entities may be eligible if they operate a trade or business.

The number of employees an employer has does not affect eligibility for the employee retention tax credit.

Integrity Data’s COVID-19 Response Task Force

Our task force is monitoring the situation and will continue to update you as information is released. In the meantime keep an eye on our COVID-19 blogs for updates,  and follow Integrity Data and #IDCOVID19updates on social media.

Need guidance on working through the recent FFCRA sick leave and E-FMLA changes in Dynamics GP payroll? See our blogs below.Coping with COVID-19 Legislation in Dynamics GP