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CARES Act establishes Covid-19 Employee Retention Tax Credit
On March 27, 2020, the President signed into law the “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” (H.R. 748). It is an estimated $2 trillion stimulus package that includes direct payments to many Americans, expanded unemployment insurance, loans to both small and large businesses, and additional resources for health care providers.
Included in the Act is a refundable employee retention payroll tax credit (CARES Credit). The CARES Employee Retention Tax Credit maxes out at $5,000 per qualified employee and is available for employers
- Of any size
- Whose operations were fully or partially suspended due to governmental COVID-19 orders, and
- Who continued paying their employees while those employees were not working
Suspension of operations may be caused by an order limiting commerce, travel, or group meetings due to COVID-19. Alternatively, employers may qualify for calendar quarters in 2020 where their gross receipts were less than 50% of the same calendar quarter in 2019.
The CARES Credit is 50% of qualified wages (up to $10,000 in wages and qualified benefits costs per qualified employee) and is claimed against quarterly employment taxes. To the extent a credit exceeds the employment tax due, the excess is refundable.
Eligible employers with over 100 employees may claim the credit on wages paid to employees while they are not providing services; whereas, eligible small employers with fewer than 100 employees can receive the credit for all employees who remain on payroll whether or not they perform services.
There are several conditions and limitations, such as a restriction from applying the same wages for this credit together with the recently enacted emergency paid sick or family leave credits (Families First Coronavirus Response Act), the Work Opportunity Tax Credit (IRC 51), or the FMLA credits (IRC 45S).