CARES Act: Employee Retention Credit Program

As everyone knows by now, there has been a whirlwind of programs coming out of the federal government in recent months in order to help businesses weather the economic fallout created by the novel coronavirus pandemic. While the Paycheck Protection Program and the Economic Injury Disaster Loan have been the 2 most common programs that people have talked about, there’s another helpful program out there that has somehow been slightly lesser known: the Employee Retention Credit program.

Never heard of it? Curious to learn more? Wondering if you might qualify? Everything is dependent on each individual employer’s situation, so you’ll almost certainly want to do research on your own as well as consult a professional. That said, here is a rough guide to help you understand the gist of the Employee Retention Credit program.

What is the Employee Retention Credit program?

The program is essentially a refundable payroll tax credit that eligible employers can access immediately.

First things first: What is this program anyway? It’s a federal tax credit that was created under the Coronavirus Aid, Relief, and Economic Security Act. The program is essentially a refundable payroll tax credit that eligible employers can access immediately. Like the Paycheck Protection Program, its aim is to help employers keep their employees on payroll even if they’re not working because of the pandemic or its effects during the covered period: March 13 and December 31, 2020.

Who was the Employee Retention Credit program designed for?

It is a program that employers qualify for and take advantage of. However it benefits employees too, since they’re the ones who will continue to get their paychecks even if they aren’t working due to the pandemic.

How does it work?

Originally, if you had taken advantage of the Paycheck Protection Program, you were ineligible for the Employee Retention Credit program, but that has since changed. Now, if you got a PPP loan and paid it back by May 14, 2020, you can still take advantage of the Employee Retention Credit program. Tax-exempt organizations can also benefit from this credit.

Who is ineligible:

• Small businesses that took a Small Business Interruption Loan
• Governmental employers
• Self-employed people

If you do qualify, you’ll get a tax credit up to $5,000 for each full-time employee you keep. You must keep them as employees between March 13, 2020 and December 31, 2020. In May, the program updated to allow healthcare expenses in the wage total.

It works by making the tax credit, which would usually come into play at tax time, immediately available. The credit would come in the form of reduced payroll taxes paid to the IRS. If you’ve already made payments after March 12, 2020 relief can come in the form of an advance credit from the IRS.

If you got a PPP loan and paid it back by May 14, 2020, you can still take advantage of the Employee Retention Credit Program.

Should I participate in the Employee Retention Credit program?

Employers qualify for the Employee Retention Credit program in 2 ways:

1. If your business had to either fully or partially shut down during the pandemic during a 2020 calendar quarter, or

2. If your gross recipes dropped below 50% of what they were in the same quarter of 2019, which the IRS describes as a “significant decline in gross receipts” regardless of the decline being directly related to the pandemic.

So, if you had to close your brick-and-mortar location but have still been able to continue other forms of business (online ordering, for example), you can still qualify for the program if your revenue has taken a big enough hit.