CARES Act – Retention Credit FAQ

The retention payroll tax credit is available to all qualified employers who:

Either had a loss of 50% or more of business for the quarter of business in 2020 as opposed to the same quarter of business in 2019

OR where business was fully or partially closed or suspended operations because or government orders limiting commerce, travel or group meetings

ONLY available for employers with payroll —includes non-profits but not government or self-employed individuals.

Where the employers’ operations come back to 80% of the prior year’s same quarter of business, then the credit is no longer available after that quarter.

The credit is for up to $10,000 per employee in gross wages and health care costs and is 50% of the wages/health care costs (Maximum is $5000)

The credit is applied or given on the 2nd quarter Form 941 tax deposits —so the employer would deduct from payroll tax deposits the credit available for each employee.

The credit could cover the employer tax deposit(s) in full.  They can use the credit over the monthly deposits until used up —-or if the credits exceed the taxes due, Form 7200 may be used to request a refund from the IRS.  We probably would recommend using up the credit against the 941 deposits first for the full quarter and then requesting the credit refund, but there is flexibility here if the employer is in need of the cash to request a refund based on the first monthly deposit.

The frequently asked questions cover a lot of the basic information and are recommended reading to familiarize yourself with the credit.

 https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

 And for second quarterly payroll tax payments —you will want to cover this credit potential if the client has experienced downturns in business or curtailed business due to the governmental restrictions.  The credit runs through 2020 but is only available until the business comes back to the 80% of the prior years’ receipts on a quarterly basis.

 If the client has a PPP loan, they are ineligible for this credit.

Even though eligible wages for the credit began with March 12, 2020 —all credits are to be reported on the 2nd quarter 941.   As of yet there is not a new Form 941 for how to report the wages and calculations for the credit —–so there is more instruction to come!

Form 941 payroll tax deposits are only for employers that paid sick leave or family leave wages to their employees.  (that is the employees received wages, but were not working).  Follow the link below to learn more about the Paid Sick Leave and Family and Medical Leave Act credit —It is also available on the second quarter

https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs