Covid 19: Payroll and Self Employment tax relief

The employee retention credit is intended to urge businesses to retain employees on their payroll. The amount of the credit is 50% of qualified wages paid up to an annual limit of $10,000. Each employee is allowed a maximum credit of $5,000.

Employers are eligible for the employment retention credit provided they meet the following criteria:

  1. Business was forced to partially or fully close , or
  2. Business saw 50% decline in receipts from corresponding quarter in 2019
  • An employer is no longer eligible when receipts are 80+% from the previous quarter. For example, Fourth quarter 2020 receipts are 80% or more of fourth quarter of 2019 receipts

The employer retention credit is not available to recipients of a PPP Loan.

Other qualifications include:

  1. Employer paid wages between March 12, 2020, and January 1, 202
  2. If a small employer ( 100 or fewer employees), business may receive the credit for wages paid to employees whether or not they are providing services to the employer; as long as there was a decline in business income.
  3. A small employer who qualifies because of closing operations, may qualify for wages paid while operation was closed.
  4. A large employer (more than 100 employees), may receive the credit for wages paid to employees for time the employees are not providing services to the employer.

How to get the credit?

The credit can be taken beginning the 2nd quarter of 2020. The qualified wages  must be reported on the Form 941, Employer’s Quarterly Federal Tax Return.

Required deposits can be reduced by the amount of the credit. An employer can request an advance of the employee retention credit by submitting Form 7200.