What is the CARES Act Employee Retention Credit (ERC)?
The CARES Act Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
The tax credit offsets all withheld federal employment taxes including federal income tax withholding, Employer FICA and Medicare and Employee FICA and Medicare. Any excess credit will be refunded or advanced by the IRS.
What is an Eligible Employer?
Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar year 2020, including a tax-exempt organization, that either:
- Fully or partially suspends operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- Experiences a significant decline in gross receipts during the calendar quarter
When is the operation of a trade or business considered partially suspended for the purposes of the ERC?
The operation of a trade or business may be partially suspended if an appropriate governmental authority imposes restrictions upon the business operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 such that the operation can still continue to operate but not at its normal capacity.
What are Qualified Wages?
Qualified wages are compensation provided to an employee after March 12, 2020 for time the employee is not providing services. Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.
Wages must not be more than the employee would have been paid for working an equivalent duration during the immediately preceding month. Employers may not use the same wages for a Work Opportunity Tax Credit (WOTC) calculation. The ERC may not be claimed if the employer receives a Paycheck Protection Plan (PPP) forgivable loan under the CARES Act.
Doesn't my payroll system/provider have a report that will allow me to identify this information?
Like most economic development business tax incentive programs, the Employee Retention Credit (ERC) has certain complexities that may impact receiving an accurate, optimized and audit-ready number that is less straightforward than typical reporting alone. It is important to fully document processes and procedures, organize your records, and avoid any risk areas in advance of any potential IRS audit of the claim, which may come years later. Issues such as normalizing pay rates, documenting qualification criteria methodology, validating other requirements, allocating healthcare expenses to the appropriate time periods, etc. The use of experienced consultants with IRS controversy experience may help to document and streamline the process which would include gathering and analyzing multiple data elements and logging required filings.
Does Canada have an Employee Retention Credit?
The Canadian government established the Canada Emergency Wage Subsidy (CEWS) program. It provides eligible employers with potentially a 75% wage subsidy for up to 12 weeks. The CEWS goal is to encourage employers to retain and re-hire workers previously laid off as a result of COVID-19.
How much does it cost to use TCC?
TCC will assess the size and complexity of the project and quote a percentage rate that is inclusive of all services provided.