Employee retention credit

General information

The Employee Retention Credit is part of the CARES Act and is designed to encourage businesses to keep employees on their payroll.
You can use the COVID-19 sick pay items under the Family First Coronavirus Response Act with the credit. However, COVID-19 sick pay items are excluded when calculating qualifying wages.
The offset of taxes is for employee and employer paid Social Security and Medicare taxes in addition to Federal Withholding.
Get the full details on the IRS website regarding the Employee Retention Credit under the CARES Act.
Consult your accountant for more guidance if you have any questions about the Employee Retention Credit.

The Employee Retention Credit provides a fully refundable tax credit equal to 50% of qualified wages (including qualified health plan expenses) paid between 03/13/2020 and 12/31/2020.
note
The maximum amount of qualified wages taken into account for each employee is $10,000.00 (for the year), which makes the maximum tax credit $5,000.00 ($10,000.00 x 50%) per employee (for the year).
The calculation is a per employee calculation of gross wages up to 50% of $10,000, meaning a cap of $5,000 gross wages per eligible employee.
This amount can include employer-paid health insurance.

The Employee Retention Credit provides a fully refundable tax credit equal to 70% of qualified wages (including qualified health plan expenses) paid between 01/01/2021 and 12/31/2021.
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The maximum amount of qualified wages taken into account for each employee is $10,000.00 (for the quarter) which makes the maximum tax credit $7,000.00 ($10,000.00 x 70%) per employee (for each quarter), $14,000 per employee (for the year).
This amount can include employer-paid health insurance.

Eligibility

The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar year.
The employer's gross receipts (sales) are under 50% of the comparable quarter in 2019.
This calculation is on a quarter by quarter basis.
The determination of eligibility for 1st quarter 2019 allows for the credit to be taken in 2nd quarter 2020.
It's expected that the 2nd quarter 941 will have a line to reflect this credit.
Once the employer's gross receipts go over 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employers with fewer than 100 employees: If the employer had 100 or fewer 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, the employer still gets the credit.
Example:
If an employer has 89 employees in which 75 of the employees are being paid wages but are not actively working and 14 of them are being paid for active work being conducted, all 89 employees would be eligible to be included in calculating qualifying wages.
Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, the credit is allowed only for wages paid to employees who didn’t work during the calendar quarter.
Example:
If an employer has 125 employees in which 100 of the employees are being paid wages but are not actively working and 25 of them are being paid for active work being conducted, only the 100 employees would be eligible to be included in calculating qualifying wages.

The Employee Retention Credit can offset the remaining 941 liabilities if regular wages are also paid on the payroll run.