CARES Act – Employee Retention Credit
Background
The new law establishes a payroll tax credit for employers subject to closure or experiencing
economic hardship due to COVID-19. The business must meet one of two tests for its wages to
qualify for the credit:
1. Business is fully or partially shut down due to orders from a governmental authority due to
COVID-19, or
2. Business experiences a significant decline in gross receipts. A significant decline in gross
receipts is where the gross receipts for the quarter are less than 50% of the gross receipts from
the same quarter in the prior year. The business’s eligibility continues until gross receipts
exceed 80% of gross receipts from the same quarter in the prior year.
The credit is 50% of wages on the first $10,000 of wages for each employee. Wages include health
benefits if they are pre-tax to the employees. The credit applies to wages paid March 13, 2020
through December 31, 2020. The credit is capped at $5,000 per employee ($10,000 max wages times
50%).
• For employers with more than 100 full-time employees in 2019: The credit can only be
calculated on compensation to employees that are NOT providing services because of the coronavirus.
• For employers with 100 or fewer full-time employees: The credit can be calculated on
compensation to all employees, even if they’re still providing services.
Other Eligibility Requirements
1. Employers who receive an SBA small business interruption loan under the CARES Act are
ineligible for the credit (i.e. paycheck protection program).
2. Wages paid to the owner or owner’s family are not eligible for the credit.
3. Employee wages used in calculating the credits listed below can’t be used in calculating the
Employee Retention Credit:
o Work Opportunity Credit
o Credits claimed under the Families First Coronavirus Response Act (i.e. paid sick leave, paid
family and medical leave). See Mandatory Paid Leave Credits for more information.
o Employer credit for paid and family medical leave (i.e. employer has its own written plan to
cover leave, separate from just the mandatory paid leave)
o R&D credit if a qualified small business claims the credit on its payroll return rather than its
income tax return.
Claiming the Credit
We are awaiting further guidance on the mechanics for claiming the credit on the actual payroll
returns.
Employers may delay remitting the employer portion of Social Security taxes on their regularly
scheduled payroll tax deposits in anticipation of receiving this credit.
The employer’s income tax deduction for wages must be reduced by the credit claimed.