CARES ACT: Employee Retention Credit

Good news for businesses regarding the Coronavirus Aid, Relief and Economic Security (CARES) act for those companies that did not receive a Paycheck Protection Program (PPP) loan or repaid that loan prior to May 15th. The IRS has announced that it will allow employers to receive a tax credit for paying health care premiums for employees on furlough via an Employee Retention Credit.

If an employer’s employment tax deposits are not sufficient to cover the credit, the employer may be able to get an advance payment from the IRS.

The Employee Retention Credit is a refundable tax credit for up to $10,000 against certain employment taxes equal to 50% of the “qualified wages” (including allocable qualified health plan expenses) an eligible employer pays to its employees between March 12, 2020 – December 31, 2020. Employers will have immediate access to the credit by reducing employment tax deposits they are otherwise required to submit. If an employer’s employment tax deposits are not sufficient to cover the credit, the employer may be able to get an advance payment from the IRS. The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000, so the maximum credit for qualified wages paid to an employee is $5,000.

Per the CARES Act, “qualified wages’ include cash compensation and qualified health plan expenses as amounts paid or incurred by the employer to support a group health plan, but only to the extent that those amounts are excluded from gross income of employees.

Eligible employers are those that carry on a trade or business during the 2020 calendar year – including tax-exempt organizations that are either:

  • Fully or partially suspend operations during the calendar quarter in 2020 due to orders from an appropriate government authority limiting commerce, travel for group meetings due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.

A significant decline in gross receipts begins on the first day of the first calendar quarter of 2020 for which an employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019.

The significant decline in gross receipts ends on the first day of the first calendar quarter following the calendar quarter in which gross receipts are more than of 80% of its gross receipts for the same calendar quarter in 2019.

Those who are self-employed are not eligible for the credit for their own self-employment earnings, but they may be able to claim the credit for wages paid to employees.

The form to file for Advance Payment of Employer Credits Due to COVID-19 is Form 7200, which you can access here: https://www.irs.gov/pub/irs-pdf/f7200.pdf

Click the following link to obtain instructions for the form: https://www.irs.gov/instructions/i7200

The IRS has also provided a list of common errors you’ll want to avoid when filling out Form 7200, which can be accessed here: https://www.irs.gov/newsroom/common-errors-to-avoid-when-filing-for-advance-payment-of-employer-credits

We’ve only very briefly spoke about the Employee Retention Credit in this article, so it is highly advisable that you go to the IRS website to obtain more in-depth information on the Employee Retention Credit, which you can find here: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

Should you wish to discuss this article further with Blue Chip Benefits, please reach out to us at Team@BlueChipBG.com or call (888) 225-8244.

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