Tax Credit Pays for Keeping Employees on Payroll
To help businesses retain employees and keep them employed during the COVID-19 crisis, Congress put in place a refundable Employer Retention Credit. This is available to all qualifying employers regardless of size, including tax-exempt organizations. To qualify for the credit, employers must fall into one of two categories:
Business Operations Curtailed: Eligible employers are carrying out a trade or business during 2020. Also, the business operation is fully or partially on hold due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.
Gross Receipts With a 50% Decline: Eligible employers have gross receipts that are less than 50% of their gross receipts for the same quarter in 2019. Employers remain eligible until their gross receipts exceed 80% of their gross receipts for the same 2019 calendar quarter.
Conflict with Paycheck Protection Loans
However, an employer who secures an SBA Paycheck Protection Loan due to the CARES Act is ineligible for the employer retention credit. Such as a Paycheck Protection Loan. This loan can be forgiven for wages paid during an 8-week period, thereby leading to double dipping on CARES Act benefits. The business must avoid applying for both benefits.
Employer Retention Credit
The employer retention credit is a refundable payroll tax credit for 50% of qualified wages up to a maximum wage of $10,000 per employee. Wages taken into account are those paid starting March 13, 2020 through December 31, 2020 and include a portion of the cost of health care provided by the employer. No credit is available with respect to an employee in any period for which the employer is allowed a Work Opportunity Credit for that employee.
What are the Qualifying Wages for the Payroll Tax Credit?
The basis for the qualifying wages are the average number of a business’s employees in 2019.
Employers with 100 or fewer employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless of whether they worked. If the employees worked full time and were paid for full-time work, the employer still receives the credit.
Employers with more than 100 employees: An employer that had more than 100 employees on average in 2019 is allowed a credit only for wages paid to employees who did not work during the calendar quarter.
Wages do not include amounts for payroll credits provided for required paid sick leave or required paid sick leave or required paid family leave for which the government is reimbursing the employer.
What is the Payroll Tax Credit Reimbursement?
The government will reimburse employers for the credit immediately. The reimbursement will reduce the requirement for payroll taxes the employer normally withholds from employees’ wages by the amount of the credit.
Advance Credit Payment, Planning Considerations
Eligible employers will report their total qualifying wages and the health insurance costs for each quarter. This is put on their quarterly employment tax returns or Form 941 beginning with the second quarter of 2020. What happens when the employer’s employment tax deposits not be sufficient to cover the credit? The employer receives an advance payment from the IRS by submitting Form 7200 Advance Payment of Employer Credits Due to COVID-19.
Can a Business Qualify for The Returntion Credit and SBA Paycheck Protection Loans?
Employers must carefully consider which tax benefit or combination of tax benefits works best for their particular set of circumstances. This is particularly according to the choice between the retention credit and the SBA paycheck protection loans. Remember, since a business cannot qualify for both of these. Each Payroll Tax Credit is specific to the business structure and affect on the business.
Massachusetts Postpones Tax Filing Deadline
One last note, I want to slip in here. Be aware Massachusetts Department of Revenue will not enforce interest or penalties for late payments, as long as tax payments are made by July 15, 2020. You should note that business’ can submit payments due for periods including February, March, and April 2020 by June 1, 2020, and te business will not be subject to penalties or interest. Thank you Govenor Baker, and our state legislature.
Do you have questions regarding each Payroll Tax Credit?
Please contact me, Alex Franch, BS EA, at 781.849.7200, with questions or call for a tele-appointment. I am an active enrolled agent with the IRS. Due to the Coronavirus you may email Worthtax at firstname.lastname@example.org to schedule an appointment to drop off you tax documents at either our Norwell, Massachusetts Tax Office or Dedham, Massachusetts Tax Office locations. Tax time may be extended to July 15, 2020, but that doesn’t mean , so go online and schedule your appointment now. You may also securely upload your encrypted tax documents below. to determine the best course of action for your business.