COVID-19 Employee retention tax credit

Overview

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides a tax credit for employers whose business is closed, or its revenue has been greatly impacted negatively as a result of Covid-19. 

Section 2301 of the CARES act addresses this tax credit. The IRS has already issued guidance and continues to update their guidance which clarifies many aspects of this tax credit, such as how this works, which company is eligible to participate, which compensation is eligible for the credit, when the credit starts and when it ends, and most importantly the ineligibility to claim this credit if the employer obtained a PPP loan.

What Does This Mean for Employers?

Employers can receive a tax credit of 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer-provided health care.

Which Wages Qualify?

Employers with up to 100 employees: If the employer had 100 or fewer full-time employees on average during the year of 2019, all wages paid to employees during the "eligibility period" are considered "Qualified Wages"; this includes wages paid to employees for work as well as wages paid for employees while not working.

Employers with more than 100 employees: If the employer had more than 100 full-time employees on average in 2019, "Qualified Wages" are the wages paid to an employee for time that the employee is not providing services due to either (1) a full or partial suspension of the employer's business operations by a governmental order, or (2) the business is experiencing a significant decline in gross receipts.

Important Notes:

  • Full-time employees are defined as for ACA purposes, that is; employees working 30 hours or more per week or 130 hours per month are considered a full-time employee.
  • The hours of Part-time employees are aggregated the same as for ACA purposes, that is; The full-time equivalent of part-time employees is the number of hours worked by all your part-time employees in a given month divided by 120. For example, two employees who each work 15 hours/week are added together to equal one full-time employee.
  • For further details on determining how to determine your company size as well as qualified wages, you might want to read IRS Guidance

Is my company eligible?

If one of the following 2 scenarios is true for your company, it is eligible:

  1. Your business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. For further details, you might want to read IRS Guidance.
  2. The gross receipts of your business are below 50% of the comparable quarter in 2019. For further details, you might want to read IRS Guidance

Are there exceptions?

While this tax credit is available to any employer regardless of size, it is important to note that if your company has received a loan under the Paycheck Protection Program it is not eligible for these credits.

What steps do I need to take to opt in for this tax credit?

  1. Fill out this agreement.
  2. Email it to CS@brandspaycheck.com.
  3. It will be processed, and our customer support department will confirm when your company has been set up.

When do I have to advise Brands to stop calculating this tax credit?

  1. If your company qualified because it has been suspended due to government order, it becomes ineligible for the credit as soon as the government order is lifted. You, therefore, need to notify us to cease calculating the credit as soon as that happens.
  2. If your company qualified because of the gross receipt reductions, it becomes ineligible in the beginning of the quarter following the end of the quarter in which its gross receipts go above 80% of a comparable quarter in 2019. When that happens, you should notify us so that we cease future tax credit calculations.

Note: At the end of 2020 we will automatically cease calculating this tax credit as this law is currently set to end 12-31-2020.

After setting this up, what else do I need to do?

  1. If you qualified because you have more than 100 employees, you would need to ensure that you distinguish between compensation for work versus compensation while not working, so that we can calculate your taxes accordingly.
  2. If your company receives accounting exports from us (such as IIF Exports, Fund Easy Export, or any other GL export) be sure to reach out to us and advise us of how your company would like this to be reflected in the export (as there are many different ways you might want to track this).

Where can I read more?

Follow this link IRS Guidance for a full IRS overview and FAQ’s on the Employee Retention Credit Program.

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