One of the key provisions under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides relief to eligible employers in the form of a fully refundable credit against employment taxes.

Eligible employers, including tax-exempt organizations, will be granted a tax credit against employment taxes equal to 50% of qualified wages paid after March 12, 2020 and before January 1, 2021. The credit can be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters, so that the maximum credit for qualified wages paid to any employee is $5,000.

Qualifying employers must fall into one of two categories:

  • The employer’s operations are fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  • The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

These measures are calculated each calendar quarter.

If the employer has more than 100 full-time employees, qualified wages are wages paid to employees who cannot work during COVID-19 related circumstances described above. If the employer has 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.

Employers will report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return. Employers can fund qualified wages by reducing their federal employment tax deposits by the amount that they anticipate claiming as a credit. If amounts set aside for deposit of federal employment taxes are not sufficient, employers can request an advance of the credit from the IRS by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

An employer may receive both the tax credits for the qualified leave wages under the Families First Coronavirus Response Act (FFCRA) and the Employee Retention Credit under the CARES Act, but not for the same wages. The amount of qualified wages for which an employer may claim the Employee Retention Credit does not include the amount of qualified sick and family leave wages for which the employer received tax credits under the FFCRA.

An employer may not receive the Employee Retention Credit if the employer receives a loan under the Paycheck Protection Program that is authorized under separate provisions of the CARES Act. An employer that receives a Paycheck Protection Program loan should not claim Employee Retention Credits.

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