• Eligible Employers: For a particular quarter, any employer (1) whose trade or business is fully or partially suspended during the calendar quarter because of a governmental order issued in response to the coronavirus outbreak that limited commerce, travel, or the size of group meetings, or (2) that has gross receipts in a particular calendar quarter in 2020 that are less than 50% of such receipts as compared to the same quarter in 2019. A business described in (2) continues to be eligible for the credit until the quarter following the quarter in 2020 in which its gross receipts exceed at least 80% of those during the same quarter in 2019.

• For example, if a restaurant was ordered to close its dine-in service but allowed to offer drive-through and take-out operations, the restaurant’s business would be partially suspended and generally eligible for the tax credit. Similarly, if a business had $100,000 in gross receipts for each of the 2^nd -4^th quarters of 2019, was fully operational but had gross receipts of only $49,000, $82,000, and $92,000 of the 2^nd, 3^rd and 4^th quarters of 2020 respectively, the business would be generally eligible for the credit in the 2^nd and 3rd quarters of 2020 (ineligibility does not occur until the quarter after the business exceeds 80% in receipts as compared to the prior year).

• Nonprofits In, Governments and Sole Proprietor Services Out: Nonprofits that are fully or partially shut down are generally eligible for the credit, but government employers and services provided by a sole proprietor are not are not eligible for the credit. 

• Calculating the Credit: The Employee Retention Credit equals 50% of qualified wages and allocable health plan expenses paid to a qualified employee in a particular quarter, with a maximum of $10,000 of wages and health care expenses of per employee taken into account in 2020.

• Example: During 2020, a qualified employer pays $8,000 of qualified wages to a particular qualified employee in the 2^nd Qtr and $7,000 in 3^rd Qtr. The employer is eligible for a credit of $4,000 in 2^nd Qtr and $1,000 in 3^rd Qtr with respect to the employee ($5,000 total credit for the employee). 

• Identifying an Employer’s Qualified Wages: Qualified wages/health expense eligible for credit depend upon the size of the qualifying employer. For qualifying employers that had greater than 100 full-time employees during 2019, qualified wages are those that an employer pays in 2020 during a qualifying quarter (closed, partially closed, significant decrease in receipts) to an employee that is not providing services (for example, the employee is furloughed but is still paid full salary). For employers with 100 or less full-time employees during 2019, qualified wages are those paid in 2020 during a qualifying quarter to an employee, regardless of whether the employee ceased providing services or continued to work. 

• For Example, an employer is operating all of 2020 but has gross receipts of 48% for the 2^nd – 4^th quarter of 2020 as compared to the same quarter in 2019. If the employer had more than 100 employees in 2019, qualified wages are limited to those wages paid to employees in the 2^nd – 4^th quarters of 2020 that are not providing any services (e.g. paid not to work). If the employer has 100 or less full-time employees during 2019, all wages paid during these quarters would qualify (up to $10,000 per employee) whether or not the employee was providing services.   

• No Double Dipping of Credits: Qualified wages for the Employee Retention Credit do not include:

• Mandatory Paid Sick and Childcare Leave wages taken into account for purposes of the payroll credits under FFCRA,

• Wages taken into account for the employer income tax credit for paid family and medical leave under section 45S of the Tax Code, or

• Wages in a period in which an employer is allowed a work opportunity credit under section 51 of the Tax Code. 

• Interplay with FFCRA Mandatory Paid Sick and Childcare Leave: Although the Employee Retention Credit cannot be claimed on Mandatory Paid Sick and Childcare Leave wages paid under FFCRA, other wages paid to the employee may be eligible. For example, where an employee returns from such Mandatory Paid Sick and Childcare Leave and is subsequently furloughed with pay.

• Credit is Paid as an Offset to Employer-Share Social Security Tax: The credit is paid as a reduction in the employer portion of Social Security Taxes otherwise owed to the IRS. If the employer portion of Social Security is insufficient to cover the credit due to the employer, the employer will receive a refund on the employers’ employment tax return for the quarter. 

• Qualified Wages Can be Funded in Part with Employment Taxes: A qualified employer that pays qualified wages in a calendar quarter before it is required to deposit federal employment taxes with the IRS for that quarter may reduce the amount of federal employment tax (Social Security, Medicare, Income Tax withholding) it deposits for that quarter by 50% of the amount of qualified wages paid in that quarter. The reduction in employment taxes remitted to the IRS will be accounted for on the employer’s quarterly employment tax return. If the federal employment taxes withheld for the quarter are insufficient to cover half of the qualified credits, the employer may apply to the IRS for an expedited refund on Form 7200. 

• Example: An qualified employer paid $20,000 of qualified wages and is due a $10,000 Employee Retention Credit. The employer did not pay any Mandatory Paid Sick and Childcare Leave. The employer withheld $8,000 of employment taxes on all employees’ wages during that quarter. The employer may retain all $8,000 of withheld taxes and apply to the IRS for a refund of $2,000 on Form 7200.