COVID-19 Employee Retention Tax Credits

This article covers the Coronavirus Aid, Relief, and Economic Security (CARES) Act's proposed expansion of the IRS rules around employee retention tax credits, as reported on Form 7200.

OVERVIEW

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes an IRS proposal that would expand the rules governing employee retention tax credits, as reported on Form 7200.

If you're an employer and are continuing to pay employees who are not working because of COVID-19, your organization is eligible for an employee retention credit for any wages paid from March 13, 2020 through the end of the 2021 calendar year. The limit for the credit is $5,000.00 per employee. 

This credit cannot be leveraged in conjunction with the Paycheck Protection Program (PPP) loan administered by the Small Business Association (SBA). You must forego the use of the credit if your PPP loan is approved, from the date of approval onward. If the loan is not approved, you may continue utilizing the credit through the end of 2021.

Visit the help community article COVID-19: Employee Retention Credit under the CARES Act for instructions on how to apply for the tax credit and download IRS form 7200 here. 
 

STAY UP TO DATE:

Always stay up to date with COVID-19: Consolidated Appropriations Act Updates for 2021 and American Rescue Plan Act: Employee Retention Credit.

 

FREQUENTLY ASKED QUESTIONS

Can our organization receive employee retention tax credits and a loan from the Small Business Administration (SBA)?

No - you must forego the use of the credit if your PPP loan is approved, from the date of approval onward.

What businesses qualify for the employee retention credit? 

Any employer, regardless of size, is eligible for the credit during the 2020 and 2021 calendar year if the business:

  1. Is fully or partially suspended due to a governmental order related to COVID-19, or

  2. Experiences a significant decline in gross receipts (i.e., a reduction of 50 percent of gross receipts from the same quarter in 2019.)

The credit also applies to tax-exempt organizations, if the operation of the organization is fully or partially suspended due to the circumstances outlined above. The credit generally does not apply to governmental employers, including the U.S. government, state and local governments, or any agency of the foregoing.

Is the credit limited to businesses affected by COVID-19? 

Yes. The credit only applies to qualified wages paid by a business whose operations have been fully or partially suspended pursuant to a governmental order related to COVID-19, or have experienced a significant decline (i.e., 50 percent) in gross receipts, as described above, during the period from March 13, 2020, through the end of 2021.  

If granted, how will we receive our credits? Will Namely be administering these credits via payroll?

Credits are based on the employer portion of Social Security tax and applied towards 941 quarterly liabilities.  Credit is criteria-based, and not all employers will qualify. Namely is currently working to determine if this can be accommodated in our system.

Can Namely assist us in applying for tax credits?

No, Namely does not provide legal, accounting, or tax advice. Please consult with professional counsel for any tax, accounting, or legal questions.

Do these credits impact our employees’ net wages at all?

No - this would be a credit to your organization due to wages you continue to pay to your employees during the COVID-19 pandemic.

Can I apply for an employee retention credit for wages paid before the COVID-19 outbreak?

No - the credit can only be applied to any wages paid from March 13 through the end of 2021.

Where can I get more information on the Employer Retention Credit?

The IRS has information on their website, and have published this informative infographic on the Employee Retention Credit. Please see Coronavirus Tax Relief for more information.