The Employee Retention Credit is a fully refundable tax credit available to all non-governmental eligible employers, regardless of size, who retain and pay qualified wages and compensation (including qualified health plan expenses) to their employees between March 12, 2020 and January 1, 2021.
Note: Employers who receive a PPP loan cannot claim the tax credit.
Eligible employers are those that carry on a trade or business during calendar year 2020, that either:
- Fully or partially suspends operating during any calendar quarter in 2020 as a result of orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for social, religious, or other purposes) due to COVID-19; or
- Gross receipts of the eligible employer fall below 50% of the comparable quarter in 2019. Note: Once gross receipts rise above 80% of a comparable quarter in 2019, you no longer qualify after the end of that quarter.
The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000. The definition of qualified wages depends, in part, on the average number of full-time employees employed by the eligible employer during 2019. Note:
- If you employed fewer than 100 employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, you will still receive the credit.
- If you employed more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
To claim the refundable tax credit, the total qualified wages and related health insurance costs for each quarter must be reported on your quarterly tax returns beginning with the second quarter. In anticipation of receiving the credits, qualified wages can be funded by accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS, or by requesting an advance of the credit from the IRS using Form 7200 – Advance Payment of Employer Credits Due to COVID-19.
For additional information concerning this tax credit see FAQs Employee Retention Credit under the CARES Act: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act