The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. Section 2301 of the Act provides an employee retention credit (ERC), designed to encourage businesses to keep their employees on payroll despite economic hardship related to the COVID-19 pandemic. The ERC is available to employers that did not receive a small business interruption loan from the SBA and that:
(1) were fully or partially suspended by government order due to COVID-19; or
(2) experienced a reduction of gross receipts by at least 50% from a comparable quarter in 2019.
The refundable tax credit is equal to 50% of qualifying wages paid, up to $10,000 per employee, from March 13, 2020 through December 31, 2020. In other words, the credit cap is $5,000 per employee for the 2020 tax year. Qualifying wages are based on the size of the business. For employers with less than 100 employees, the credit is based on wages paid to all employees, regardless if they worked or not. For employers with more than 100 employees, the credit is allowed only for wages paid to employees who did not work.
Employers do not have to wait until the business files its 2020 tax return to claim the credit. The ERC may be claimed against the employer portion of employment taxes. In the event that the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer.
Ayming is dedicated to helping businesses identify, maximize and accurately secure tax credits. By deploying our team of tax and legal experts to understand your business and investigate your activities, we maximize your returns while effectively and efficiently minimizing any time burden on your business operations. With an extensive knowledge of tax, as well as the recent stimulus program, Ayming is your trusted partner.
Go to our Insights page to read more of our views on the current tax changes, the R&D Tax Credit, and the positive impact it can have on your business.