Employee Retention Credit Update
Since the Paycheck Protection Program funding has run out and Congress has yet to add more funds to the program, we wanted to take the opportunity to remind you of another alternative that could help your businesses: The CARES Act’s Employee Retention Credit.
The Employee Retention Credit was designed to encourage businesses to keep employees on their payroll. Below is information on how this program works.
- An eligible employer is an employer that meets one of the following hardships:
- The operations of the employer are partially or fully suspending due to government orders (such as “shelter-in-place”).
- The employer experiences a significant decline in gross receipts during a quarter where the employer’s gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019. The hardship period ends at the beginning of the following quarter after the gross receipts are at least back to 80% of its gross receipts for the same calendar quarter in 2019.
- For example, if my business’s gross receipts for 1st quarter 2020 were 48% of 1st quarter 2019, my 2nd quarter 2020 receipts were 83% of 2nd quarter 2019, and then my 3rd quarter 2020 receipts were 90% of 3rd quarter 2019, I can apply this credit to wages for both 1st and 2nd quarter of 2020.
- Self-employed individuals do not qualify for this credit.
- Qualifying wages for this credit are the following:
- If the employer averages more than 100 full-time employees in 2019, then qualifying wages are wages being paid to employees to cover the time they are unable to work due to the hardship. The qualifying wages cannot exceed what the employee was normally paid for the 30 days prior to the hardship.
- If the employer averages 100 or fewer full-time employees in 2019, then qualifying wages are all wages paid to any employee during the period of hardship.
- Qualifying wages also includes any employer’s cost of group health insurance for the same period.
- Qualifying wages exclude any wages paid as FFCRA sick/family leave.
- An eligible employer may not take this credit if they have taken out a Paycheck Protection Program (PPP) loan already.
- Any credit that is in excess of the employer’s total 941 liability may be claimed directly through the filing of the Form 7200 and the instructions.
Here you will find the IRS FAQs regarding the Employee Retention Credit.
Paycheck Protection Program Loan Update
The Paycheck Protection Program (PPP) for small businesses has run out of funds, according to the Small Business Administration (SBA).
The SBA says 1.66 million applications were approved, totaling $349 billion in loans from 4,975 lenders. It is unclear how much of the original $349 billion has been sent out the door to applicants. Many small-business owners had trouble applying, especially when going through big banks.
Will the government add more money to the program?
In a statement, the Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza said, “The SBA has processed more than 14 years’ worth of loans in less than 14 days. We urge Congress to appropriate additional funds for the Paycheck Protection Program a critical and overwhelmingly bipartisan program at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks.”
If Congress does approve more funds for the PPP Loans, we will be sure to update our site with more information as it becomes available.
Record Keeping during Covid-19
We have updated our FAQs area under the topics:
- Paycheck Protection Program
- FFCRA Paid Leave
- Employee Retention Credit
Pandemic Unemployment Assistance (PUA) Program
The U.S. Department of Labor has published information on the Unemployment Insurance Program regarding guidance to states for implementation of the Pandemic Unemployment Assistance (PUA) program.
Under PUA, individuals who do not qualify for regular unemployment compensation and are unable to continue working as a result of COVID-19, such as self-employed workers, independent contractors, and gig workers, are eligible for PUA benefits.
Under the guidance, federal law permits significant flexibility for states to amend their laws to provide unemployment insurance benefits in multiple scenarios related to COVID-19. For example, federal law allows states to pay benefits where:
- An employer temporarily ceases operations due to COVID-19, preventing employees from coming to work
- An individual is quarantined with the expectation of returning to work after the quarantine is over
- An individual leaves employment due to a risk of exposure or infection or to care for a family member
In addition, federal law does not require an employee to quit in order to receive benefits due to the impact of COVID-19.
PUA provides up to 39 weeks of benefits to qualifying individuals. Benefit payments under PUA are retroactive, for weeks of unemployment, partial employment, or inability to work due to COVID-19 reasons starting on or after January 27, 2020. The CARES Act specifies that PUA benefits cannot be paid for weeks of unemployment ending after December 31, 2020.
Eligibility for PUA includes individuals not eligible for regular unemployment compensation or extended benefits under state or federal law. Covered individuals also include self-employed individuals, those seeking part-time employment, and individuals lacking sufficient work history. Depending on state law, covered individuals may also include clergy and those working for religious organizations who are not covered by regular unemployment compensation.
For state by state information please visit here.
For the department of labor unemployment resources please visit here.
Paycheck Protection Program Loans Update
Click here to view the application. The breakdown below will assist you in understanding what the loan may be used for including the type of employee pay covered and calculation of the monthly average for different types of employers.
- Payroll costs that consist of compensation to employees whose main place of residence in the United States.
- The payroll costs consist of salary, wages, commissions, cash tips, payment for vacation, parental, family, medical or sick leave, allowance for separation or dismissal, employee benefits consisting of group health care coverage, including insurance premiums and retirement.
- Payment of state and local taxes assessed on the compensation of employees.
- Independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment.
- Additional items covered are mortgage interest payments, lease payments, and utility payments.
Average of Monthly Payroll:
- Most businesses should use the average monthly payroll for 2019, exclude costs over $100,000 on an annualized basis for each employee.
- For seasonal businesses use average monthly payroll for the time period between February 15, 2019, and June 30, 2019, excluding costs over $100,000 on an annualized basis for each employee.
- For new businesses, average monthly payroll may be calculated using the time period from January 1, 2020, to February 29, 2020, excluding costs over $100,000 on an annualized basis for each employee.
There are also additional relief options, this link will lead you to all small business programs available for COVID-19 purposes through the SBA.
This link will lead you to SBA local assistance offices and other resources that may be able to assist you in answering questions about your business.
Below are great resources from the IRS on the various tax credits available to employers when it pertains to the FFCRA and CARES Act. Also, information from the Department of Labor regarding Employer Paid Leave and Notice.
FAQs on Employee Retention Credit
Form 7200 and Instructions
FAQs on Employee Retention Credit under the CARES Act
FAQs on COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses
Families First Coronavirus Response Act: Employer Paid Leave Requirements
FAQs on Employer Paid Leave Requirements
Families First Coronavirus Response Act Notice
Claiming Advance Credits
The IRS released Form 7200 (Advance Payment of Employer Credits Due to COVID-19). A draft version can be found on the IRS site for published forms. This form is intended to be the method by which employers can claim an advance on credit against FFCRA leave or the employee retention credit for any additional amount that is required beyond their credit against 941 liability. This is not meant to be used to track credit against 941 liability, but rather a request for additional funds that could not be offset against 941 liability. Employers can file this form as many times as they’d like during a quarter to request a refund of excess paid leave. The instructions also clarify record retention policies required for the employer to keep for at least 4 years:
- Documentation to substantiate the amount of qualified sick and family leave wages eligible for the credit.
- Documentation to substantiate the amount of the employee retention credit.
- Documentation to substantiate the amount of qualified health plan expenses that were allocated to wages.
- Documentation to substantiate that employees were qualified to receive sick and family leave wages, including any additional information, set out in Frequently Asked Questions or other guidance on IRS.gov.
- Documentation to substantiate eligibility for the employee retention credit based on the suspension of operations or a significant decline in gross receipts.
- Copies of completed Form(s) 7200 you filed with the IRS.
Paid Leave Taxability Update
The taxability of leave pay is exempt from the employer’s portion of Social Security. In addition, we’ve learned that the Medicare taxes that the employer accrues on leave is considered eligible for a credit. We are working on updating our solutions to accommodate this clarification.
CARES Act (Coronavirus Aid, Relief, and Economic Security Act) as it pertains to Small Business
Paycheck Protection Program Loans with Loan Forgiveness
The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides loan forgiveness for certain qualifying small businesses through the Small Business Administration (SBA) loans.
Employers with fewer than 500 employees can apply for a maximum of $10 million loans with loan forgiveness under the paycheck protection program.
The items listed below are forgiven if they are made during the covered period of the loan. The amount forgiven cannot exceed the principal amount of the loan.
- Payroll costs
- Interest payments on covered mortgages
- Utility payments
The loans are to be used within the 8-week period beginning on the date the loan is originated.
The amount forgiven will be reduced if the business has had employee layoffs or reductions to employee salaries and wages.
There is a Forgiveness Reduction Formula for Employee Layoffs. The formula can only reduce the amount forgiven and cannot increase it.
The reduction formula for employee salaries and wages is reduced by the amount of any reduction in salary or wages of any employee during the covered period, which is in excess of 25% of total salary and wages for the most recent quarter for that employee. Employees earning over $100,000 per year are excluded.
If an employer rehires the employees or raises salaries and wages back to their prior level by June 30, 2020, the reduction formula will not consider reductions.
Businesses who want to apply for loan forgiveness under this program are to apply for these loans directly through the SBA at (www.SBA.gov/disaster). They will need to submit supporting documentation to their lender.
- Proof of verification of employees
- Proof of utility payments
- Other documents to confirm their expenses
There are no loan fees, guarantee fees or prepayment fees. As of now, the site is still being updated, so you may have to wait a few days to apply. When the application is up and running, make sure to apply for Economic Injury for the Coronavirus, not the physical damage due to another disaster.
You must have been in business by January 31, 2020, to qualify you can’t start a business now and receive this kind of grant.
Employer Payroll Tax Relief
Employers and self-employed individuals can defer payment of the employer share of Social Security taxes incurred between the date the CARES Act was enacted March 27, 2020, through December 31, 2020. These amounts are to be paid over the following two years, with half due on December 31, 2021, and the other half due on December 31, 2022.
*We are currently working on how we will facilitate this to our clients and will have more information forthcoming shortly, you may also contact your payroll representative for information on how to defer their SS tax payments
Employee Retention Tax Credits
Eligible employers will be allowed a refundable payroll tax credit equal to 50% of qualified wages paid or incurred between March 13, 2020, and December 31, 2020,
- If the employer’s operations were fully or partially suspended because of a shut-down order due to COVID-19
- If the employer’s gross receipts declined by more than 50% when compared to the same quarter in the prior year.
The credit is generally provided for up to $10,000 of qualified wages (including eligible health benefits) per eligible employee. The credit is not available to employers who receive a paycheck protection loan.
We will continue to gather information on these topics and provide more resources as they are made available.
The Department of Labor (DOL) has released a workplace poster that is declaring the effective date as April 1st, not April 2nd as originally understood based on the law. In addition, this poster needs to be posted in a conspicuous place on all premises similar to other labor posters – the poster can be found here.
The DOL has added a qualifying reason for leave as “is experiencing any other substantially-similar condition specified by the U.S. Department of Health and Human Services.” The full list of qualifying reasons is listed on the poster.
The agency has also clarified that the regular rate of pay used for calculating leave must at least be the higher of the federal or state minimum wage.
There is another act related to the coronavirus (CARES Act) that the government is working toward enacting. The law has not been enacted as of today, but we will provide more updates on this legislation as it becomes available.
The payroll tax credit, effective on April 1, will be available immediately to businesses through offsetting federal payroll tax deposits. This includes employee federal, social security, and medicare withholding as well as employer portions for these taxes.
If there are not enough taxes to cover the paid leave wages, then a request can be made to the IRS to expedite a refund, which will be processed within two weeks. Details on how a request can be made will be announced this week.
We are working diligently to ensure our payroll applications are prepared to handle the offsetting credits and will be providing further updates in the coming days regarding these changes.
A copy of the IRS announcement can be found here.
The Families First Coronavirus Response Act
The Families First Coronavirus Response Act was signed into law on March 18, 2020.
It will take effect no later than 15 days after enactment and will remain in place until December 31, 2020.
This law takes emergency action during the Coronavirus (COVID-19) epidemic to provide both family medical leave and paid sick time for individuals that need to care for infected family members or children whose daycare or school has closed.