Employer Payroll Credits

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.

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. When the employer’s gross receipts exceed 80% of the comparable quarter in 2019, the employer no longer qualifies for the credit at the end of that quarter.

The credit is not available to employers receiving Small Business Interruption Loans (payroll protection loans) or to self-employed individuals.

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.

No credit is available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit with respect to the employee.

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.

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. Wages taken into account for this credit are not taken into account for the Code Sec. 45S employer credit for paid family and medical leave.

Refunds and Advance Payments. IRS can advance payments to eligible employers, if the amount of the credit for any calendar quarter exceeds the applicable payroll taxes, the employer can claim a refund of the excess on its federal employment tax return. In anticipation of receiving the credits, employers can also fund qualified wages by accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS or by requesting an advance of the credit from the IRS on Form 7200.

Waiver of penalties. IRS can waive applicable penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit.

Effective date. The credit applies to wages paid after Mar. 12, 2020 and before Jan. 1, 2021.

Source Thomson Reuters/Tax & Accounting