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Employee Retention Tax Credit Available in the CARES Act

This article was updated May 4, 2020.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) provides eligible employers, including qualified non-profits, a refundable credit against the employer’s OASDI payroll tax liability equal to 50% of the first $10,000 in wages paid per employee. To be eligible, employers must have carried on a trade or business during 2020 and meet either of the following tests:

  • Have business operations fully or partially suspended (see IRS FAQs 30-38) due to orders from a governmental entity (see IRS FAQs 28-29); or
  • Experience a year-over-year reduction in gross receipts of at least 50% calculated by comparing calendar quarters. Eligibility for the credit continues until gross receipts exceed 80% year-over-year (see IRS FAQs 39-46).

For employers with more than 100 full-time employees (measured by 2019 count), only employees who are currently not providing services for the employer due to COVID-19 causes are eligible for the credit (see IRS FAQs 48-61). Employers of 100 or less employees to not need to furlough employees to take the credit. The employee retention credit is effective for wages paid after March 12, 2020, and before January 1, 2021. Wages paid per employee do not include any amount of wages taken into account for required paid sick leave and required paid family paid leave credit under the Families First Coronavirus Response Act. Excess credits are refundable, and the Treasury can allow advance payment of credits (see IRS FAQs 73-78). The employee retention tax credit is not available to employers who obtain a small business interruption loan under the Cares Act (see IRS FAQs 79-83).

Please contact Kevin Halloran or your Bose McKinney & Evans attorney for more information.