The CARES Act Section 2301 creates a new employee retention credit (the Retention Credit) for wages paid from March 13, 2020 to December 31, 2020, by employers that are subject to closure or significant economic downturn due to COVID-19. The credit amount takes into account up to 50% of qualified wages, up to $10,000. Thus, the maximum Retention Credit amount is $5,000 per employee. The Retention Credit applies to:
- The employer’s share of Social Security tax under IRC Section 3111(a) (6.2% of wages)
- The portion of the employer’s and employee representative’s share of RRTA tax under IRC Sections 3211(a) and 3221(a) that corresponds to the 6.2% Social Security tax rate due
- Qualified wages for employers with 100 or fewer employees qualify for the entire credit.
To be eligible for the Retention Credit an employer must carry on a trade or business in 2020 that experiences one of the two following COVID-19-related occurrences:
(1) operations were fully or partially suspended on orders from a governmental authority due to COVID-19 (COVID-19 Shutdown), or
(2) the business experienced a 50% reduction in gross receipts for a calendar quarter as compared to the same calendar quarter in the prior year (Gross Receipts Decline).
- The gross receipts test is governed by IRC Section 448(c), which evaluates gross receipts on an aggregated basis, combining parents and subsidiaries, brother and sister entities, combined groups, and affiliated service groups, under the rules of IRC Section 52(a) and (b), and IRC Section 414(m) and (o).
Please not additional rules for eligibility:
- Any employer that receives a Paycheck Protection Program loan are not eligible for the Retention Credit.
- Also, qualified wages do not include amounts paid for the sick leave credit or the FMLA credit enacted by H.R. 6201. (Section 2301 of the Act)
- An employer’s deduction for wages must be reduced by the amount of the Retention Credit.
*Please note that as information is updated and modified, terms and conditions are subject to change.