The CARES Act Employee Retention Tax Credit allows eligible employers to take up to a $5,000 tax credit per employee to encourage employers to retain employees during the Coronavirus pandemic.
Employers are not allowed to participate in both programs, but according to CPA Jennifer Wold, a partner in BKD CPAs and Advisors, the ERC may actually be more beneficial to some employers.
“The employee retention credit is an alternative to the popular PPP loan that for some may provide benefit in excess of the PPP loan forgiveness,” she said in an email. “Companies are not allowed to participate in both programs so careful evaluation is recommended.”
To qualify employers must have fully- or partially-suspended 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 have experienced a significant decline in gross receipts during the calendar quarter.”
BKD provided significant guidance on who is eligible and how to calculate wages, in this article.
Nonprofit entities may qualify as well, if they experienced a significant reduction in revenue, the organization may then take a credit of up to $5,000 per employee towards its share of the Social Security taxes due. If the amount of the tax credit (approximately the number of employees x $5,000) is greater than the Social Security taxes due, then the tax credit can be applied towards other employment taxes due and be refunded for any overages.
“The credit is computed by employee by quarter and is limited to 50% of up to $10,000 in qualified wages,” Wold said. “There is specific guidance to determine if your Company qualifies and we suggest consulting with your CPA to ensure compliance.
“For those companies that qualify and have less than 100 employees, all wages paid to employees can be considered, whereas if your company has more than 100 employees, the credit only applies to wages paid to employees that are not providing services due to Covid-19.”