Determine if the Employee Retention Credits can be Claimed by You -CARES Act Relief (as of 4/20/20)
Relief of payroll costs may be available to your business or nonprofit if your operations are affected by the Coronavirus. The employee retention credit is available only when you are not participating in the Payroll Protection Program forgivable loan program. The purpose of this funding is to support businesses that have a full or partial downturn in business due to the Coronavirus.
How do I determine if I am eligible?
If the company is receiving a loan through the Paycheck Protection Program, it is not eligible for this program.
Other businesses and nonprofits are eligible if:
- The business has been partially or completely suspended in the calendar quarter due to a government order.
- The business has gross receipts of 50% or less than it had in the corresponding calendar quarter in 2019. When revenue in a calendar quarter reaches at least 80% of the revenue in that 2019 calendar quarter, the quarter in which the rebound occurs is the final quarter to receive the credit.
How much is the credit and how to claim it?
- The credit is for 50% of qualified wages paid after March 12, 2020 and before January 1, 2021.
- The credit will be provided as a refundable payroll tax credit. Employers can reduce payroll tax deposits during the quarter for the expected credit or they may provide for the credit during the completion of the quarterly 941. The wages will first reduce the employer portion of the 6.2% social security tax to zero, and then any excess amounts are refundable.
What are Qualified Wages?
- For employers with 100 or more employees, wages are only eligible for those employees that did not provide services in the calendar quarter, but were still on payroll.
- For employers with fewer than 100 employees, wages are eligible for all employees during the period in which operations are partially or fully suspended or for all employees during the quarter where there was a reduction in gross receipts.
- Wages include amounts paid for gross payroll and the employer portion of the cost of qualified group health Wages are limited to $10,000 per employee per quarter. The credit is limited to 50% of those wages, or a maximum credit of $5,000 per employee per quarter.
- Wages for paid time off provided under the Families First Coronavirus Response Act as paid sick leave and Family Medical Leave are not eligible for inclusion.
- Wages being used toward other credits such as the Work Opportunity Act Credit, Veterans Credits or Research and Development Credits are not eligible for inclusion in the qualified wages of the Employee Retention Credit. Wages for related parties are also not eligible for inclusion.
Deferral for Some Employer Payroll Taxes Equals Cash Flow Benefits for You – CARES Act Relief
Another effort to support cash flows is the opportunity to defer the employer share of OASDI (otherwise known as Social Security Tax). This deferral is available to employers participating in the Paycheck Protection Program, but for a limited time.
What is deferred, how and what is the repayment term?
- The employer portion of OASDI, known as social security tax, may be deferred for amounts due March 27, 2020 through December 31, 2020. No employee withholdings may be deferred.
- This is a deferral, similar to an interest-free loan; amounts will have to be paid in the future. Requirements for repayment are that 50% of the deferred amounts must be paid by December 31, 2021 and 50% must be paid by December 31, 2022.
- If you use a payroll provider, you will need to let them know not to pay this tax. You will ultimately be responsible for making sure the deferred amount is paid back on time and determine whether the company or the payroll provider will make the payment.
- You can participate in this program if you are applying for the Paycheck Protection Program, but you can only defer taxes until the Paycheck Protection Program loan is forgiven. The deferral of taxes must stop at the date of forgiveness. Repayment will be required to be paid 50% each by December 31, 2021 and December 31, 2022.
We want to keep you informed on these opportunities and will update you with any new information as it becomes available. RitzHolman CPAs is your accounting resource. Please reach out to use if you need any assistance.