IRS Employee Retention Credit
Helping You Support Your Employees
The Employee Retention Credit is a provision under both the newly enacted CARE Act and the Families First Coronavirus Relief Act (FFCRA) that is designed as an incentive for Eligible Employers to retain their current employees.
What is it?
Firstly, the Employee Retention Credit (or Qualified Retention Wages) is different from the Qualified Sick Leave Wages offered under the Emergency Paid Sick Leave Act as well as the Qualified Family Leave Wages offered under the Emergency Family and Medical Leave Expansion Act. An Eligible Employer may not use multiple tax credits for the same employee wages.
The Retention Credit is a quarterly business tax credit that is fully refundable and retroactively applies to wages paid after 3/12/20. Any employee wages, including health benefits, paid between March 13th, 2020 and January 1st, 2021 are qualified to earn this tax credit.
Am I eligible?
Businesses of all sizes, including tax-exempt organizations, can be eligible for this tax credit. However, small businesses who have taken out small business loans for the COVID-19 disaster and self-employed individuals are not eligible.
Eligible Employers must meet one of the two below requirements:
- The business is partially or fully suspended by Government order due to COVID-19 during the quarter(s) the credit is used for.
- The business’ gross receipts fall below 50% of the comparable quarter in 2019. If the gross receipts exceed 80% of the comparable quarter, the business no longer qualifies after the end of that particular quarter.
How much will I receive?
The credit amount will be 50% of the total qualifying wages paid, up to $10,000 per employee.
What types of wages qualify depend on the average number of employees a business had in 2019, and it boils down to these two groups:
- Businesses with less than 100 employees
- Businesses with more than 100 employees
If the employer had less than 100 employees, on average, during 2019 then the credit is based on wages paid to all employees, regardless if they all worked or not.
If the employer had more than 100 employees, on average, during 2019 then the credit is based only on wages paid to employees who didn’t work during the comparable quarter.
How is the Employee Retention Credit fully refundable?
One of the great aspects of this particular tax credit is that it is fully refundable. That means an Eligible Employer may receive a refund if the total amount of credit is more than the taxes the employer is responsible for.
For instance, if an employer pays one of their employees $10,000, that employer has $5,000 in tax credit available for them to use when paying their portion of the associated social security tax. If the amount owed by the employer is less than $5,000 the excess will first be used to offset any remaining tax liabilities. After that, any remaining amount will be considered an over-payment from the taxpayer on their filed return and be included in their refund.
How do I take advantage of this?
There are two main ways to receive this tax credit; one is immediate and the other relies on an IRS reimbursement.
- You can report the total qualified wages and related credits per quarter on your federal employment tax return via Form 941 as usual.
- You can reduce the amount of deposited payroll taxes that were withheld from your employees’ paychecks.
A third, likely less popular option, is to request an advance from the IRS using Form 7200.
Where do I find more information?
The IRS has more information on the Employee Retention Credit on their website here.
All information in this article was sourced from the IRS and U.S. Department of Treasury's overviews.