Employee retention credit can help financially impacted business

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April 2020

Overview

The Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, is designed to encourage eligible employers financially impacted by the coronavirus to keep employees on their payroll. The fully refundable tax credit, equal to 50% of up to $10,000 in qualified retention wages, is available to all eligible employers, regardless of size. 

An eligible employer may be able to claim the credit for qualified wages paid as early as March 13, 2020. Eligible employers may claim the credit immediately by reducing their deposits of federal employment taxes, and claiming an advance of any remaining credit on Form 7200, Advance Payment of Employer Credits Due to COVID-19.

The IRS on March 31 posted on its website FAQs: Employee Retention Credit under the CARES Act, providing guidance around the implementation of the employee retention credit. The IRS on March 31 also issued Notice 2020-22, providing employers relief from the Section 6656 failure-to-deposit penalty for an employer’s failure to timely deposit employment taxes to the extent that the amounts not deposited are equal to or less than the amount of refundable employee retention tax credits to which the employer is entitled.

The takeaway

The employee retention credit is designed to help eligible employers that have been financially impacted by the coronavirus keep employees on their payroll. The credit provides immediate payroll tax relief via a fully refundable credit of up to $5,000 per employee. The credit may be claimed in advance by reducing federal employment tax deposits and claiming advances on Form 7200, thereby allowing employers to fund qualified wages by accessing federal employment taxes for any wage payments made in the same quarter.

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Bill Wilkins

Managing Director, Tax Policy Services, PwC US

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