Employee Retention Credit – An Alternative to the Paycheck Protection Program Loan

Alert COVID-19 – Shannon & Associates LLP _ Kent, WA

The CARES Act includes a payroll tax credit called the Employee Retention Credit.  Employers who did not obtain a PPP loan can take advantage of this credit.

What is it?

This is a payroll tax credit for up to 50% of each employees’ wages and certain benefits calculated on the first $10,000 of wages paid during the credit period.

Which employers Qualify?

Employers including tax-exempt organizations, pass through entities, sole proprietors.

Operating a trade or business during 2020 and experienced.

  • A significant decline in gross receipts compared to 2019
  • Full or partial suspension of operations due to government limits due to COVID-19

How does this credit work with other available relief?

If the business receives a Paycheck Protection Program loan, they do not qualify for the Employee Retention Credit.

However, employers can get the Employee Retention Credit if they repay the PPP loan in full by May 14 (originally May 7). They cannot get the credit if loan is not repaid.

Wages that were paid under the Families First act (sick and family leave, paid family and medical leave) do not qualify as wages for this credit.

Wages paid to employees who qualified for the Work Opportunity Credit are not included in the credit calculation.

What is a significant decline in gross receipts?

On the first day of a calendar quarter, gross receipts are 50% of gross receipts from the same quarter in 2019.

The decline ends when gross receipts are more than 80% of the same quarter in 2019.

Qualified Wages and Credit Period

Wages paid after March 12,2020 through December 31, 2020.

Wages plus health plan costs qualify for the $10,000 paid per employee.

Eligible wages differ for businesses with over 100 employees.

Eligible employers that averaged 100 or fewer full-time employees in 2019 can now treat its health plan expenses as qualified wages even if the employees are not working and the employer does not pay the employees any wages for the time they are not working.

How do Employers get the credit?

Beginning with the Q-2 Form 941’s – reduce the Form 941 deposits by the credit.

Use Form 7200 to apply for an advance credit.

Additional information:

Guide the the Employee Retention Credit (U.S. Chamber)

Employee Retention Credit (IRS)

Claiming CARES Act Tax Credits To Keep Employees (Forbes)

Contact our office with questions.

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