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Six Things to Know about the New CARES Act Employee Retention Credit

March 30, 2020

By: Amanda Wilson 

The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law by President Trump last week. This $2.2 trillion stimulus bill contains an important, limited time tax credit for employers that are forced to suspend or limit operations due to COVID-19 while continuing to pay their employees. Unlike the tax credits provided for under the Families First Coronavirus Ac, this tax credit is not limited to companies with less than 500 employees. 

1. Who Qualifies For the Credit? 

An employer if either:

  1. The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19; or
  2. The operation of the business incurred a significant decline in gross receipts. A significant decline in gross receipts occurs if, during any quarter in 2020, gross receipts for that quarter were less than 50% of what the gross receipts were for the same quarter in 2019. Any business that falls under this provision will be entitled to a credit for each quarter until the business has a quarter where gross receipts exceed 80% of the same quarter in the prior year. 

If the employer is a non-profit organization, it can qualify for the tax credit if it has a full or partial shutdown described (i).

2. How Much Is The Credit? 

For each quarter that is described within clause (i) or (ii) above in 2020, an employer will receive a credit applied against its 6.2% employer share of payroll taxes equal to 50% of qualified wages paid to each employee for that quarter.

3. What Are Qualified Wages? 

The amount of qualified wages will depend on how many employees the business had in 2019. If the average number of full time employees for 2019 exceeded 100, the qualified wages are only those wages (including health benefits) paid by the employer to employees that are furloughed. By contrast, smaller businesses who had less than 100 average full time employees for 2019 will receive a larger credit, as qualified wages will include all the wages (including health benefits) paid for each eligible quarter.  

4. Is the Credit Refundable?

Yes.   

5. What is the Effective Date? 

Wages paid between March 12 and December 31. 

6. What Limitations Should I Be Concerned About? 

The biggest limitation is that the credit is not available if the employer takes out a Small Business Interruption Loan offered under Section 1102 of the CARES Act. If you are considering taking out one of these SBA loans, consider whether the benefit of the loan is worth the loss of the credit. 

Furthermore, not all wages qualify. The amount of qualified wages per employee for all quarters is capped at $10,000, which means that the maximum credit per employee is $5,000. In addition, wages do not include amounts taken into account (i) for purposes of the payroll credits, (ii) for required paid sick leave or required paid family leave in the Families First Coronavirus Act, (iii) the Section 21 work opportunity credit, or (iv) the Section 45S employer credit for paid family and medical leave. 

Be sure to visit our Coronavirus (COVID-19) Response Team page to keep up to date on the latest news.


This article is informational only. You should consult an attorney before acting or failing to act. The law may change rapidly and no warranty is given. LOWNDES DISCLAIMS ALL IMPLIED WARRANTIES AND WITHOUT LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ALL ARTICLES ARE PROVIDED AS IS AND WITH ALL FAULTS. Consult a Lowndes attorney if you wish to establish an attorney/client relationship.
Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts.


Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, qualified opportunity zones, and investment tax credits available for solar and other renewable energy. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

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