IRS Issues 94 Frequently Asked Questions (“FAQs”) Detailing Specific Requirements for Utilizing the Employee Retention Credit in the CARES Act

Today, the IRS issued 94 Frequently Asked Questions (“FAQs”) detailing specific requirements for utilizing the employee retention credit that is contained in the CARES Act. The FAQs are located here.

The CARES Act provides a refundable payroll tax credit for 50% of a portion of wages paid by eligible employers to certain employees during the COVID-19 crisis. Eligible employers entitled to claim the employee retention credit are private-sector businesses and tax-exempt organizations that carry on a trade or business during calendar year 2020 and either:

  1. Have operations that were fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  2. Experienced a significant decline in gross receipts during the calendar quarter.

IMPORTANT NOTE: An employer is NOT eligible for the employee retention credit if the employer took a Paycheck Protection Program loan (regardless of whether the loan is forgiven).

The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an eligible employer for qualified wages paid to any single employee is $5,000. There are different rules for qualifying for the credit depending upon the employer’s number of employees.

  • If an eligible employer had more than 100 full-time employees in 2019, qualified wages are the wages paid for time that an employee is not providing services due to either (1) a full or partial suspension of the employer’s business operations by a governmental order, or (2) the business experiencing a significant decline in gross receipts.
  • If an eligible employer averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period in the calendar quarter in which the business operations are fully or partially suspended due to a governmental order or any calendar quarter the business is experiencing a significant decline in gross receipts.

Only certain employers can benefit from this credit. An employer must have (1) not received a Paycheck Protection Program loan, (2) had its business fully-or partially suspended OR had a 50% drop in gross receipts, AND (3) kept employees for which it is seeking the retention credit on the payroll for the period for which it is seeking the credit. (Number 3 isn’t required if the employer had less than 100 employees – but such an employer likely requested a PPP loan).

If you have any questions, please contact Jim Longacre or the Stevens & Lee attorney with whom you normally work.