CARES Act – Employee Retention Credit for Employers Subject to Closure Due to COVID-19

By: Timothy Lynn

Employers are potentially eligible for an Employee Retention Credit for 50% of payroll taxes on qualifying wages paid to employees.

Employers eligible include for-profit and not-for-profit organizations that conducted a trade or business during calendar year and the operation of the trade or business is fully or partially suspended pursuant to an order from an appropriate governmental authority due to COVID-19. For-profit employers can also qualify in gross reciepts in a calendar quarter declined more than 50% from the same quarter in 2019.

The credit is for 50% of payroll taxes paid on qualifying wages pursuant to Section 3111(a) and Section 3221(a) of the Internal Revenue Code. Qualifying wages for any employee is capped at $10,000. Determination of the amount of qualified wages depends upon how many employees the employer has:

For employers with more than 100 employees (certain aggregation rules apply), the credit is only available for wages continued even though the employer was unable to provide services because of an order from an appropriate governmental authority due to COVID-19 or the employer satisfies the reduction in gross receipts test.

For employers with 100 or fewer employees, all employees are eligible and all wages paid to such employees are eligible.

Any employer taking a Small Business Interruption Loan [sic – the reference appears to be to an SBA 7(a) loan under the Payroll Protection Program] is not eligible for the Employee Retention Credit.