Employee Retention Credit

Technical topics regarding tax preparation.
#1
kathyt  
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I have many clients wanting to get SBA loans and are asking my advice on whether to get the Economic Injury disaster loan v/s the new Paycheck Protection Program under Sec 1102 of the CARES Act. I also see that many of my clients would greatly benefit from the Employee retention credit under Sec 2301; but if they get the loan forgiveness with the loan under the Paycheck Protection Program they will not be able to take the Employee Retention credit. So I am trying to figure out what advice to give there by looking at how much of the loan would most likely be forgiven v/s how much they would likely benefit from the Employee Retention credit. But there is one part I don't understand, when it says limited to 10k per employee does that mean per quarter or for the whole year? Like does it mean 10k per employee per year or 10k per employee per quarter? This is the part I'm talking about:

SEC. 2301. EMPLOYEE RETENTION CREDIT FOR EMPLOYERS SUBJECT TO CLOSURE DUE TO COVID–19.
(a) In General.—In the case of an eligible employer, there shall be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.
(b) Limitations And Refundability.—
(1) WAGES TAKEN INTO ACCOUNT.—The amount of qualified wages with respect to any employee which may be taken into account under subsection (a) by the eligible employer for all calendar quarters shall not exceed $10,000.
(2) CREDIT LIMITED TO EMPLOYMENT TAXES.—The credit allowed by subsection (a) with respect to any calendar quarter shall not exceed the applicable employment taxes (reduced by any credits allowed under subsections (e) and (f) of section 3111 of the Internal Revenue Code of 1986 and sections 7001 and 7003 of the Families First Coronavirus Response Act) on the wages paid with respect to the employment of all the employees of the eligible employer for such calendar quarter.
 

#2
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My reading is that this is a per employee limit for the entire applicable period (Mar-Dec 2020).
~Captcook
 

#3
Keyad22  
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CaptCook wrote:My reading is that this is a per employee limit for the entire applicable period (Mar-Dec 2020).



Yes.

From Checkpoint
Employee retention credit for employers

New law. This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. (Act Sec. 2301(a))

Eligible employers. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. (Act Sec. 2301(c)(2))

The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act. (Act Sec. 2301(j))

Wages paid to which employees? For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers' closure or reduced gross receipts are eligible for the credit. (Act Sec. 2301(c)(3)(A))

No credit is available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit (Code Sec. 21) with respect to the employee. (Act Sec. 2301(h)(1))

Wages. The term "wages" includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee. ((Act Sec. 2301(c)(3)(C); Act Sec. 2301(b)(1))

Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act (part of P.L. 116-127) (Act Sec. 2301(c)(3)(A)), nor for wages taken into account for the Code Sec. 45S employer credit for paid family and medical leave. (Act Sec. 2301(h)(2))

Other. IRS is granted authority to advance payments to eligible employers (Act Sec. 2301(l)(1)) and to waive applicable penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit. (Act Sec. 2301(k))

Effective date. The credit applies to wages paid after March 12, 2020 and before Jan. 1, 2021. (Act Sec. 2301(m))
 

#4
Wiles  
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This credit is taken against the employer's 6.2% payroll tax. Does the excess credit carryforward to the next quarter?
 

#5
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It's refundable, right?
 

#6
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Related question -- what if there is no previous quarter in 2019 for comparison to measure drop in revenue? Business began 7/1/19, say.
 

#7
MWPXYZ  
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I) the operation of the trade or business described in clause (i) is fully or
partially suspended during the calendar quarter due to orders from an appropriate
governmental authority limiting commerce, travel, or group meetings (for commercial,
social, religious, or other purposes) due to the coronavirus disease 2019 (COVID- 19), or

a drop in business compared to 2019.

So I guess if a business is shut down there is no ned to compare with 2019.

BTW, the credit is for 50% of the $10,000 per employee for 2020
 

#8
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This client's business isn't technically shut down, but she's a dentist and works as a contractor. No work right now. She was not in business yet for the same quarter in 2019.
 

#9
MWPXYZ  
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must be partially suspended!!!

Dentists here are only dealing with emergencies
 

#10
Wiles  
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I wonder if our company is considered partially suspended? We have 2 of our 10 folks not working because they are in high risk categories and not able to work remotely. We have also cancelled appointments and closed the doors to the public which have slowed progress. Our March billings are going to be less than last year. Of course, most of that is due to us going back to normal work weeks because the pressure of the deadline is off.

Is there a definition of partially suspended? I don't think my situation counts, but some of our clients may want to push it.
 

#11
Wiles  
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I have a question about the 100 employee count. I have a client with 4 restaurants at different locations in different S-Corps. If we aggregate, he is over 100. Is he out of luck for using the < 100 employee rules? This is very unfortunate.
 


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