The Employee Retention Credit has been designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by the coronavirus and quarantine.
Who's eligible? All employers regardless of size—including tax-exempt organizations—but not state and local governments and their instrumentalities or small businesses that take small business loans.
Qualifying employers fall into one of two categories:
Wages paid after March 12, 2020, and before January 1, 2021, are eligible for the credit. Wages taken into account aren't limited to cash payments -- they include a portion of the cost of employer-provided health care. Qualifying wages are based on the average number of a business's employees in 2019.
How do you receive your credit if you think you're an eligible employer?
You can be immediately reimbursed for the credit by reducing required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit. Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on quarterly employment tax returns or Form 941, beginning with the second quarter.
If your employment tax deposits aren't sufficient to cover the credit, you may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. You can request an advance of the Employee Retention Credit by submitting Form 7200.
The Families First Coronavirus Relief Act (FFCRA) requires certain employers to pay sick or family leave wages to employees who are unable to work or telework due to certain circumstances related to COVID-19. Employers are entitled to a refundable tax credit for the required leave paid, up to specified limits. The same wages cannot be counted for both credits. Also, businesses may not receive the Employee Retention Credit if they also receive a Small Business Interruption Loan under the Paycheck Protection Program.
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