An alternative provision under the CARES Act provides tax relief for employers that have been financially impacted by the COVID-19 pandemic. A tax credit, the Employee Retention Credit (ERC), of 50 percent of up to $10,000 per employee in wages paid and related health plan expenses is available to "eligible employers." The credit applies to wages paid after March 12, 2020 and before January 1, 2021.

WHO IS ELIGIBLE?

Eligible employers are businesses and tax-exempt organizations that experience a significant decline in gross receipts or are forced to reduce operations by government-imposed COVID-19 restrictions. The ERC credit is an alternative to the Payroll Protection Program (PPP) and employers that receive PPP loans are not eligible for the ERC tax credit.

The ERC credit applies to the employer's portion of social security payroll taxes on wages paid and is refundable to the extent the credit exceeds the employer's aggregate liability for social security payroll taxes in a particular calendar quarter.

HOW CAN I CLAIM THE ERC CREDIT?

The credit is claimed by reducing the employer's quarterly payment (net of any CARES Act deferral of social security payroll taxes until 2021) by the ERC credit amount and accounting for this reduction on the employer's quarterly federal tax return, IRS Form 941. This allows employers to retain the credit amount with no obligation to make any repayment. Alternatively, employers can request an advance of the credit from the IRS by filing Form 7200.

For eligible employers that averaged more than 100 full-time employees during 2019, the ERC credit is available only for wages and related health plan expenses paid with respect to employees for time that they are not providing services due to the employer's qualifying COVID-19 economic hardship.

TAKEAWAYS

Employers who missed out on the PPP loan program have a second chance for COVID-19 tax relief.

Consider Frequently Asked Questions published by the IRS for additional details or consult a GCT lawyer to discuss your particular situation:

Andrew Williams
aswilliams@gct.law
(312.696.1373)
or
Nancy Franks-Straus
nfstraus@gct.law
(312.696.1368)