The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates a refundable payroll tax credit for businesses (large and small) and non-profits that retain their employees during the COVID-19 crisis. This is an optional refundable employer payroll tax credit of 50% of wages on the first $10k of wages per employee. Eligible wages are those incurred March 13th through end of the year. Large businesses only qualify if they had to shut down, subject to a government order. Small businesses qualify if: 1) they had to close subject to a government shutdown order; or 2) their gross receipts dropped by 50% from the same period in 2019. The tax credit is equal to 50% of wages and compensation. There is an overall limit on wages per employee of $10,000. The credit is provided through December 31, 2020.
Intersection with paid leave: If the employer is paying sick or family leave under H.R. 6201, the employer doesn’t get to take the same wages into account for the purposes of this credit
Health Coverage Plus-up: Employers can add a pro rata share of health expenses in addition to wages. Further guidance will be forthcoming from Treasury on how to make the calculation.
Employers are eligible if they have been fully or partially suspended as a result of a government order, or if they experience a 50 percent reduction in quarterly receipts as a result of the crisis.
Amount of Tax Credit
- For employers with 100 or fewer full-time employees, they may claim a credit for wages paid to all of their employees, up to $10,000 a person.
- For employers with more than 100 employees, they may claim a credit for those employees who are furloughed or face reduced hours as a result of the employer’s closure or economic hardship.
- The tax credit is worth 50 percent of wages and benefits paid to employees, and is provided for up to $10,000 of combined wages and benefits per employee.
- As the credit is worth 50 percent, this means the maximum credit will be $5,000 per employee.
Applying the Tax Credit
The credit can be claimed against the business or non-profit’s quarterly payroll tax liability and is fully refundable to the extent of excess. The Department of the Treasury is authorized to make advance payments of the tax credit, and to waive penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit.
This tax credit is not available if the employer takes an SBA paycheck protection loan. More information about the SBA Paycheck Protection Program is available here.
As more information about this tax credit becomes available, please check the IRS’s website at https://www.irs.gov/coronavirus.