Originally Posted April 2, 2020; Updated August 26, 2020
Learn about tax credits available to businesses in response to COVID-19, including: (1) Employee Retention Credit, (2) Families First Coronavirus Response Act Qualified Leave Wages Credit
SDC is not a tax advising entity. However, we believe it's important to be aware of these potential opportunities to then ask your accountant if they would help your business.
Employee Retention Credit
As part of the CARES Act of 2020, the Federal Government is offering a new, immediate refundable tax credit opportunity for businesses who operate a trade or business during calendar year 2020 through the Employee Retention Credit. Similar to the Pay Check Protection Program, this credit is designed to encourage businesses to keep employees on their payroll. If utilized, employers are credited 50% of up to $10,000 in wages paid after March 12, 2020, and before Jan. 1, 2021 by an eligible employer whose business has been financially impacted by COVID-19. Note: if you utilize the Pay Check Protection Program, you cannot take advantage of the Employee Retention Credit.
Questions & Answers
Who is eligible?
All employers regardless of size, including tax-exempt organizations (excluding: State and local governments and their instrumentalities and small businesses who take small business loans i.e. those who utilize the Pay Check Protection Program) who either:
(1) The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter; or
(2) The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter. These measures are calculated each calendar quarter.
What is a qualifying wage?
For businesses with <100 full-time employees in 2019, it is wages paid (including certain health care costs & up to $10,000 per employee) to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.
For businesses with >100 full-time employees in 2019, it is wages paid to only those employees who did not work during the calendar quarter.
How do I receive the credit?
By reducing your required deposit of payroll taxes that have been withheld from employees' wages by the amount of the credit; and
If your employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Is there a maximum credit amount?
Employers can receive up to a $10,000 tax credit.
I am utilizing the Families First Coronavirus Response Act Qualified Leave Wages Credit, can I also receive the Employee Retention Credit?
Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
Wages counted for this credit can't be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
I am utilizing the Work Opportunity Tax Credit for an employee, can I also receive the Employee Retention Credit?
Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.
If an employer receives a Small Business Interruption Loan under the Paycheck Protection Program, authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
Learn more at: www.irs.gov/newsroom/employee-retention-credit
(1) Paid Sick Leave Credit
This is one of the two credits credit by the Families First Coronavirus Response Act (FFCRA). The Paid Sick Leave Credit is a short-term tax credits employers can utilize to pay employee wages and get their money reimbursed. This credit provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar (100%), for the cost of providing paid sick and family leave wages to their employees for leave under the Emergency Paid Sick Leave Act under the FFCRA.
(2) Child Care Leave Credit
This is the second credit created by the Families First Coronavirus Response Act (FFCRA) and is also a short-term tax credits employers can utilize to pay employee wages and get their money reimbursed. This credit provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the cost of providing paid sick and family leave at 2/3rds the employee wages to their employees for leave under the Emergency Family & Medical Leave Expansion Act under the Families First Coronavirus Response Act (FFCRA).
Questions & Answers (Paid Sick & Child Care Leave Credits)
Who is eligible?
Employers who (i) have fewer than 500 employees, and (ii) are required under the FFCRA to pay “qualified sick leave wages” and/or “qualified family leave wages.”
When can it be utilized?
When an employer provides paid sick leave for an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis; or
When an employer provides paid sick leave for an employee who is caring for someone with Coronavirus, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus; or
When an employer provides paid sick leave for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus.
Is there a maximum credit amount?
Employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days when an employee who is unable to work because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis; or
Two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days for an employee who is caring for someone with Coronavirus, or is caring for a child because the child's school or child care facility is closed, or the child care provider is unavailable due to the Coronavirus. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period; or
Two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate for up to 10 weeks for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.
How do I receive the credit?
By reducing your required deposit of payroll taxes that have been withheld from employees' wages by the amount of the credit; or
By claiming the credits on your federal employment tax returns (e.g., Form 941, Employer's Quarterly Federal Tax Return); and
If your employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.