Internal Revenue Service Employee Retention Tax Credit Update

The Employee Retention Credit is a fully refundable tax credit for employers.  The available credit is 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.

Eligible employers are those 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.
   

The Employee Retention Credit is allowed against the employer portion of social security taxes under section 3111(a) of the Internal Revenue Code. Eligible Employers will report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return.  Form 941 is used to report income and social security and Medicare taxes withheld by the employer from employee wages, as well as the employer’s portion of social security and Medicare tax.
 

Please note, an eligible employer may not receive the Employee Retention Credit if the eligible employer receives a Small Business Interruption Loan under the Paycheck Protection Program authorized under the CARES Act.  FUELIowa recommends that members work closely with their payroll service provider  as it pertains to the Employee Retention Tax Credit.