Coronavirus tax credit for employee retention

A new tax credit program designed to help companies and nonprofits retain their employees during the coronavirus outbreak is now in effect. 

The federal Employee Retention Tax Credit is one of several programs coming out of the new economic stabilization bill, called the CARES Act, to provide life support for the nation’s economy during the massive closures and slowdowns of businesses, schools and government.

The Arizona Chamber of Commerce and Industry and the U.S. Chamber of Commerce is urging all types of businesses to take advantage of these programs including the new tax credit exemption. 

A strategic goal of these new financial relief measures is to keep employees connected to their companies and receiving benefits, said Glenn Hamer, president and CEO of the Arizona Chamber. 

The programs offer assistance to all types of companies and nonprofits including small operations with 500 or fewer employees, he said. 

“We can’t leave small business in the lurch. Period. End of the story,” Hamer said. “These programs are a lifeline for our businesses that are falling by the wayside by the nanosecond. By offering support now, it will be much easier for the economy to ramp up again.”  

Tax credit for operations halted or slowed down by COVID-19 

Employers whose business operations are suspended, partially suspended or are experiencing significant revenue losses because of the virus outbreak are eligible for the tax credit exemption. 

This new tax credit exemption is a 50 percent credit for the first $10,000 of employee compensation. It includes the employer portion of health benefits, for each eligible employee. 

The credit only applies to wages paid after March 12, 2020 and before January 1, 2021.

Eligibility requirements

The new tax credit exemption applies to businesses and nonprofits operating in 2020 that have fully or partially suspended operations as a result of orders from a governmental authority due to COVID-19 or that experience a decline in gross receipts by more than 50 percent in a quarter compared to the same quarter in 2019.

If gross receipts in a quarter exceed 80 percent compared to the same 2019 quarter, however, that quarter is not eligible.

Employees who count towards eligibility for the tax break include:

• For employers with more than 100 employees: Full-time employees who are being paid but not providing service due to either a full or partial shutdown or a reduction in gross receipts 

• For employers with 100 or fewer full-time employees: All employees, regardless of whether those employees are providing service

How the credit works

The refundable credit is applied against the employer portion of payroll taxes. The Treasury Department will develop a process for employers to receive an advance payment of the tax credit.

Caveats 

• Employers who receive a Paycheck Protection Program loan are not eligible. 
• Employers cannot claim the same employee for this credit and the Work Opportunity Tax Credit for the same period. In addition, employers may not claim the same wages for an employee under this credit and also under the employer credit in section 45S for FMLA.
• Compensation does not include paid sick or family leave for which the employers are reimbursed under the Families First Coronavirus Response Act.

More information on the tax credit program, go to: Employee Retention Tax Credit Exemption.

The U.S. Chamber of Commerce also has issued a guide to assist employers at: Employee Retention Tax Credit Guide. 

Other new programs to help companies, nonprofits stay afloat 

Two other new programs designed to help small businesses, nonprofits, independent contractors and others financially damaged during the virus outbreak include forgivable loans for capital costs, pay payroll, mortgage, rent, utilities and other operating costs.

To assist businesses seeking relief during the coronavirus, the U.S. Chamber created free “cheat sheets” and guides for these two programs:   

Paycheck Protection Program Guide 

The CARES Act created the new Paycheck Protection Program for businesses and nonprofits with 500 or fewer employees. That includes part-time workers. 

The guide is available at: uschamber.com/sbloans

Economic Injury Disaster Loan Guide

The CARES Act expanded the Small Business Administration’s long-standing Economic Injury Disaster Loan Program, which includes $10,000 grants for eligible applicants. The program was created to assist businesses, renters, and homeowners located in regions affected by declared disasters. The guide is available at: uschamber.com/eidl