You’d be hard pressed to find a business that hasn’t been impacted by the coronavirus pandemic. Some types of businesses, such as grocery stores, were able to stay busy; however, you’re more likely to find a business that has been limited in some way because of it. Some businesses have been forced to have employees work remotely. Others faced problems with their supply chain. Or, they’ve either had to completely shut down or make changes to their operations to comply with government restrictions.
The CARES Act passed in March 2020; it included economic relief to a wide range of individuals, organizations, and businesses. For business owners, the most widely known part of the CARES Act was the Paycheck Protection Program. But it also created the Employee Retention Credit; an additional way to encourage businesses to keep employees on payroll instead of furloughing them.
What is the Employee Retention Credit?
The Employee Retention Credit is a fully refundable payroll tax credit. This credit allows eligible employers to claim a credit of 50% of qualified wages. They can claim up to $10,000 per employee; but only for employees on the payroll between March 12, 2020 and December 31, 2020. This makes the total credit worth up to $5,000 per employee.
Eligible wages include payments made toward health insurance plans, however, they do not include paid sick or family leave covered by the Families First Coronavirus Response Act (FFCRA). Though this tax credit is available to businesses of all sizes — including nonprofits — it is not available to all employers.
Who Qualifies for the Employee Retention Credit?
To get the tax credit, there are two ways a business can qualify. The first requirement is that a business’s operations are either partially or fully suspended because of a government order related to COVID-19. Or they could be eligible if they experienced a decline of 50% or more of their gross receipts when compared to the same quarter in 2019. Businesses don’t necessarily need to meet both of these requirements to be able to get the Employee Retention Credit.
“Non-essential” businesses, under government orders, tend to be more likely to qualify for the credit. However, an essential business could still be eligible. This is especially true if they were forced to reduce their business hours because of a government order. These businesses may also be eligible if they were unable to obtain necessary inventory because of restrictions placed on suppliers.
Because of mandated shutdowns, many businesses were able to continue operations by switching to remote work. In this case, they likely would not be eligible for the Employee Retention Credit because operations were not suspended. While nonprofits are also eligible for the credit, the U.S. Chamber of Commerce notes that 501(c) organizations need to have fully or partially suspended their operations to qualify. Household employers and government employers do not qualify. Self-employed people also aren’t eligible for the tax credit. However, if a self-employed person employs others, and paid qualified wages to those employees, they may be eligible.
Companies that receive loans through the Paycheck Protection Program also are not eligible for the Employee Retention Credit. However, according to guidance from the U.S. Treasury Department and Small Business Association, companies that received a PPP loan but repaid it by May 14, 2020, may be eligible for the credit.
How Many Employees Can be Claimed?
The number of employees that can be claimed is based on the company’s average number of full-time employees in 2019. It’s important to note that the Employee Retention Credit only applies to full-time employees. If a company has 100 employees or fewer, all employees can be claimed even if they are still working. Companies with more than 100 employees can only claim employees who are on payroll but are not working. This means employees cannot be working in any capacity, including teleworking or doing partial work.
How to Get the Employee Retention Credit
For more information about how to claim the Employee Retention Credit, review detailed information provided by the IRS.
