Employee Retention Payroll Tax Credit

30 Mar Employee Retention Payroll Tax Credit

Another crucial piece of the law that is provided to assist employers, is the Employee Retention Credit, that provides a refundable credit against applicable federal employment taxes. The provision is effective for wages paid or incurred from March 13, 2020 through December 31, 2020.

Important to Note:
– Being a part of a Professional Employer Organization (PEO) does not preclude any taxpayer from taking advantage of this credit.
– This credit is not available to any employer who takes a loan under the Payroll Protection Loan Program. Paycheck Protection Program Loans

Eligibility – For employers with greater than 100 full-time employees, qualified wages are limited to wages paid to employees who are unable to provide services due to COVID-19 circumstances. For small employers with less than 100 full-time employees, all wages are considered qualified, regardless if the employee is able to provide services or not. Average number of full-time employees is determined based on 2019 under the health coverage shared responsibility rules.

The credit is available for eligible employers carrying on a trade or business in 2020 whose:
– Operations were fully or partially suspended, due to the COVID-19 crisis, or
– Gross receipts declined by more than 50% when compared to the same quarter in the prior year.

Credit Calculation –A credit is provided for 50% of the qualified wages paid by eligible employers of each employee for each calendar quarter. On a per employee basis, wages are capped at compensation of $10,000, including health benefits, for all quarters. With the credit being equal to 50% of qualified wages, this limits the credit to $5,000 per employee.

Applying the Credit – The credit itself is for the 6.2% Social Security Tax only. The credit is refundable to the extent it exceeds the employer portion of the Social Security Tax reduced by the paid sick leave established in the Families First Coronavirus Response Act. The provision is effective for wages paid or incurred from March 13, 2020 through December 31, 2020.