Last Updated: 4/6/2020
Employers have a new incentive to keep underutilized employees on their payroll during the COVID-19 outbreak. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, certain employers (including tax-exempt entities) are eligible to have 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
To be eligible for these tax credits, a company must meet the following criteria:
The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 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.
Depending on the size of your company, qualifying wages can vary. Note that the size of your company is based on the average number of employees a company had in 2019.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
For updates and more detail, take a look at the IRS Employee Retention Tax Credit FAQS and find additional, up-to-date information on the IRS Coronavirus page. This article will also be updated as the Treasury Department issues new information and guidelines. For additional information about CARES, FFCRA, and how your business can respond to the COVID-19 outbreak, please visit our COVID-19 Resource Center.
If you have questions about how the CARES Act or FFCRA impacts your business, please consult your legal advisor or tax professional.