This update is for business owners with payroll expenses.
As part of the Coronavirus (COVID-19) tax relief for businesses, the “Employee Retention Credit” (under CARES Act) has been issued by the federal government on March 27, 2020.
This is part of the Families First Coronavirus Relief Act (FFCRA) which mandates pay for sick or family leave time cause by the Coronavirus. This FFCRA has a payroll credit, but it cannot be used to overlap with the Employee Retention Credit. Also, you don’t qualify if you take the new SBA loans for Payroll Protection Program (PPP) or SBA Disaster Relief.
So if you are not using the FFCRA payroll credits or PPP (PPP Info Sheet-US Treasury) or SBA Disaster Relief, this one is for you! This includes non-governmental non-profits that suspends operations or has a sharp decline (50% or more) in revenues for a calendar quarter. Note this does not include self-employed individuals.
This credit is a fully refundable to employers up to 50% of qualified wages and health plan expenses paid to eligible employees between 3/12/20 and 12/31/20. Maximum wages of $10,000 per employee, per quarter are eligible (50% equals $5,000 credit) and includes business owners and family members on the payroll.
How much credit? The employer’s portion of Social Security Tax (IRS §3111(a)) is the tax being credited, not other payroll taxes. If the tax credit exceeds the entire payroll tax for the period, the difference will be refunded by check or direct deposit!
How to apply for the credit? Use the normal federal quarterly form 941.
More details and FAQ’s are at IRS-Employee Retention Credit and is worth the read!