IRS releases guidance on Employee Retention Tax Credit under CARES Act

On March 31 the Treasury Department and the IRS launched the Employee Retention Credit, which was a major provision of the CARES Act, the third COVID-19-related bill passed by Congress. 

The credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. 

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: 1) State and local governments and their instrumentalities and 2) businesses that take small business loans.  This prevents “double dipping” as the small business loans used for payroll costs – including the payment of associated federal and state employment taxes – for retaining employees are eligible to be forgiven.   

To qualify for the Retention Credit, employers must fall into one of two categories: 

1. The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter. 
2. The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter. 

An IRS FAQ document about the Retention Credit is available here.