EMPLOYEE RETENTION CREDIT

The Basics on the CARES Act version

• Payroll tax credit available for 50% of qualified wages paid by an eligible employer to its employees after 3/12/20 and before 1/1/2021

• Eligible employer – an employer whose 1) operations have been fully or partially suspended as a result of an appropriate government order limiting commerce due to COVID-19 or 2) experienced a greater than 50% reduction in quarterly gross receipts as compared to the same quarter in the prior year

• The credit would not generally apply to employers that took PPP loans or EIDL’s

• The credit is limited to the employer’s 6.2% portion of FICA payroll taxes

• Maximum wages taken into account for any employee may not exceed $10,000

The Changes from the new CA Act

• The credit now applies to employers that took PPP loans; Payroll costs qualifying for PPP loan forgiveness would not include wages taken into account in determining the ERC (3/12/20-12/31/20)

• Credit increased from 50% to 70% of qualified wages (1/1/21-6/30/21)

• Requires only a 20% reduction in gross receipts (rather than 50%)

• Employers not in existence in 2019 are to compare their gross receipts in the current calendar quarter in 2021 to the same calendar quarter in 2020

• Eligible employers should retain an amount of the employment taxes equal to the amount of their employee retention credit rather than depositing these amounts with the IRS; The employment taxes available for the credits include withheld federal income tax, employee share of social security and Medicare taxes, and the employer share of social security and Medicare taxes. If there aren’t sufficient taxes to cover the cost of the employee retention credit, employers can file Form 7200 to request an advance payment

• Any advanced credit payments and reduced 941 deposits will need to be reconciled on your employer 941 quarter tax report

• If your returns are filed by a third-party payer, you will need to provide them with copies of the Form 7200 you filed so they can reconcile the credits on the quarterly tax return

• You can file the form for an advance payment of the credits anticipate for a quarter at any time before the end of the month following the quarter in which you paid qualified wages; You can file Form 7200 several times during each quarter; Don’t file Form 7200 after you file Form 941 for the fourth quarter of 2020