In response to the COVID-19 pandemic, the Department of the Treasury and the Internal Revenue Service (“IRS”) recently issued several pieces of guidance this week on the various tax credits established for employers under the Families First Coronavirus Relief Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Below is a summary of the new developments available on the IRS Coronavirus Tax Relief webpage.
IR-2020-62 – Employee Retention Credit
In IR 2020-62 (March 31, 2020), the IRS offered initial guidance on the Employee Retention Credit, which was established by the CARES Act as another way to encourage businesses to keep employees on their payroll.
- Eligible Employers. The credit is available to all employers regardless of size, including tax-exempt organizations, but there are two exceptions: state and local governments and their instrumentalities and small businesses who take small business loans are ineligible for the credit (including the Paycheck Protection Program).
- Employers Significantly Affected by COVID-19. This credit is available to organizations whose business operations were fully or partially suspended as a result of a COVID-19 shutdown order (e.g., non-essential businesses), or whose gross receipts declined by more than 50 percent compared to calendar quarter in 2019.
- Maximum Credit of $5,000 per Employee. The amount of the credit is 50 percent of qualifying wages paid (including the cost of employer-provided health care). 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 credit is based on wages paid after March 12, 2020, and before January 1, 2021.
- Qualifying Wages. Qualifying wages are based on the average number of the organization’s employees in 2019. If the average is 100 or fewer, then the credit is based on wages paid to all employees, regardless of whether or not they worked in the current year. If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
- Claiming the Credits. An organization can claim the credits by reducing federal tax deposits as permitted in Notice 2020-22 or by filing the new Form 7200, both of which are described below.
In addition to the news release, the IRS posted a helpful FAQ on the Employee Retention Credit.
Notice 2020-22: Relief from Penalty for Failure to Deposit Employment Taxes
In Notice 2020-22 (April 1, 2020), the IRS formally announced it is waiving penalties for failure to make a deposit of employment taxes (including income tax withholding, Federal Insurance Contributions Act taxes, and taxes pursuant to the Railroad Retirement Tax Act). The waiver will apply to the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled and claiming under FFCRA and the CARES Act.
FAQs and Guidance for COVID-19 Related Tax Credits for Required Paid Leave
In conjunction with Notice 2020-22, the IRS added a webpage with detailed and extensive guidance and FAQs for the refundable payroll tax credits available to small and midsized employers (private and nonprofit employers with fewer than 500 employees) who provide paid leave as mandated by the provisions of FFCRA. Our prior overview of those tax credits can be found here.
The new IRS guidance and FAQs can be found here.
Form 7200: Advance Payment of Employer Credits Due to COVID-19
Similarly, the IRS has finalized a new Form 7200 that will allow employers to request an advance payment of one or more of the credits available under FFCRA and the CARES Act. The Form and its instructions are available here.
Hall Render will continue to monitor and provide you with information as it becomes available. Please refer to Hall Render’s COVID-19 Resource Center and hotline at (317) 429-3900 for any questions, as well as up-to-date information regarding the virus. If you have any questions on the issues discussed in or related to this post, please contact:
- Calvin Chambers at (317) 977-1459 or cchambers@wp.hallrender.com;
- James Willey at (317) 977-1409 or jwilley@wp.hallrender.com;
- John Bowen at (317) 429-3629 or jbowen@wp.hallrender.com; or
- Your regular Hall Render attorney.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
