NOTE: If you have received a Payroll Protection Program forgivable loan, then you are ineligible for the employee retention credit.
To determine your eligibility for the Employee Retention Credit, there are a number of alternative criteria: (You can utilize the credit if you satisfy any of these).
For all businesses and nonprofits, a big enough reduction in your revenue makes you eligible regardless of government shutdown orders. Your revenue during a calendar quarter in 2020 must be less than 50% of your revenue in the same calendar quarter in 2019.
If you operate in a geographic area where the government says you are not an essential business and you are subject to a partial or full shutdown order, then you generally are eligible. However, per the FAQs issued by the IRS, if you are operating via telework then you are not eligible.
If you operate in a geographic area where the government says you are an essential business, then you generally are not eligible (but a big enough reduction in your revenue can make you eligible).
Once you have determined that you are eligible, there is a workforce size criteria for how much your credit will be.
If you have less than 100 employees, the retention credit is based on qualified wages for all employees
If you have 100 or more employees, the retention credit is based on qualified wages for employees you continue to pay who do not work
How much is the credit?
The Employee Retention Credit is 50% of the first $10,000 of each employee’s qualified wages paid after March 12, 2020 and before January 1, 2021 (based on which quarters your business is eligible). This means the cap on the credit is $5,000 per employee.
What are Qualified Wages?
Qualified wages include wages and employer-paid health benefits. Wages paid to the business owner and their family do NOT count as qualified wages. Also, wage increases given during an eligible quarter do not count as qualified wages. Leave pay under the FFCRA does not count as qualified wages for the retention credit.
How do I take the credit?
The Employee Retention Credit is a payroll tax credit. You will take the credit against all payroll taxes (both employer payroll taxes and employee withholdings) reported on the quarterly Form 941. This means you can reduce your payroll tax deposits immediately by the amount of retention credit you will be claiming on Form 941. If the credit will be substantially more than your payroll tax deposits, you can request an advance refund from the IRS using Form 7200 or wait and get a refund when you file Form 941.
Please contact us if you need assistance with any of the pandemic relief benefit programs.