Does my business qualify to receive the employee retention credit due to COVID-19?
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Last modified 5/27/2020 7:09:50 AM EST
The Employee Retention Credit is given to qualifying employers that operate their business during 2020 and retain employees, despite experiencing economic hardship related to COVID-19. The Employee Retention Credit is available to all employers regardless of size, including tax-exempt organizations. Qualifying businesses can File Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to request an advance payment of the tax credits.
The qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter
- The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter.
Say, for instance, an employer reported $500,000 as Gross Receipts in each of the 4 quarters of 2019. If in Q1 2020, the Gross Receipts is below $250,000 (50% of $500,000 reported in Q1 2019) they qualify for the employee retention credit for the quarter. If say, the economic situations improve by Q3 2020 and the business makes over $400,000 (80% of $500,000 reported in Q3 2019), they do not qualify for the credit at the end of Q3 2020.
The refundable tax credit is based on the qualified wages paid to employees after March 12, 2020, and before January 1, 2021. Credit equivalent to 50% of qualified wages paid to employees is given, with a maximum of $10,000 in qualified wages for each employee for the cumulative total of all calendar quarters.
There are only two exceptions on the qualifying criteria:
- Government entities including state and local governments and their instrumentalities and
- Small businesses that take Small Business Loans.