The CARES Act provides a refundable payroll tax credit (against employER portion of Social Security Tax) for 50 percent of wages paid by employers to employees during the COVID-19 crisis.
The credit is available to employers whose:
(1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or
(2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
The credit is based on qualified wages paid to the employee from March 13, 2020 through December 31, 2020. The credit is provided based on the first $10,000 of compensation, including health benefits, paid to an eligible employee.
For employers with an average of more than 100 full-time employees in 2019, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
For eligible employers with an average of 100 or fewer full-time employees in 2019, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.
A refundable credit is one that is refunded if the credit is larger than the tax itsself.
Here’s some limitations that apply:
- No credit is allowed for a business that receives a PPP loan. (CARES Act Section 2301(j).)
- No wages paid to an employee are taken into account if the employer is allowed an IRC Section 51 credit (work opportunity credit) with respect to the employee for the period. (CARES Act Section 2301(h)(1).)
- An IRC Section 45S credit (paid family and medical leave credit) is not allowed for any wages used to calculate the employee retention credit. (CARES Act Section 2301(h)(2).)
- The credit is only allowed for wages paid after March 12, 2020, and before January 1, 2021. (CARES Act Section 2301(m).)
IRS explanation: https://www.irs.gov/coronavirus/employee-retention-credit
IRS Form 7200: https://www.irs.gov/pub/irs-pdf/f7200.pdf
IRS Form 7200 Instructions: https://www.irs.gov/instructions/i7200
For a more expansive analysis of the provisions: https://www.lanepowell.com/Our-Insights/200613/Who-CARES-About-the-Employee-Retention-Credit-When-You-Have-the-SBA-Loans-You-Do-If-You-Have-Too-Many-Employees-for-an-SBA-Loan-or-the-Banks-Already-Made-Loans-for-the-349B-Available-for-the-SBA-Loans
