FAQs provide guidance limiting scope of employee retention credit

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May 2020

Overview

The IRS on April 29 updated its FAQs: Employee Retention Credit under the CARES Act site to include several new frequently asked questions (FAQs), providing additional details on significant aspects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s employee retention credit program. The FAQs clarify issues such as employer eligibility, qualified wages for time during which no services were performed, whether qualified health expenses alone qualify as qualified wages, and how the credit affects business deductions.  

The employee retention credit program is intended to encourage eligible employers financially impacted by the COVID-19 pandemic to keep employees on their payroll during the economic downturn. The employee retention credit is equal to 50% of up to $10,000 of qualified wages paid by eligible employers from March 13, 2020, through December 31, 2020. The maximum amount of the fully refundable credit is $5,000 per employee.

The new FAQs posted on April 29 follow the IRS’s March 31 posting of FAQs providing initial guidance around implementation of the employee retention credit program. For more information, see our insight Employee retention credit can help financially impacted businesses pay employees.

The takeaway

The CARES Act employee retention credit provides eligible employers whose business has been financially affected by COVID-19 with a significant benefit that can assist in funding wages paid to employees and that provide liquidity in the current environment. Employers with more than 100 full-time employees should consider tracking wages paid to employees during time for which services were not performed so as to be able to support claiming the credit upon determining eligibility at the employer level. Employers also should consider other available credits to determine which credit is most beneficial to the business.

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Susan Lennon

Managing Director, PwC US

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