Employee Retention Credit Eligibility 2020 | Eligibility For Employee Retention Tax Credit

Employee Retention Credit Eligibility 2020 | Eligibility For Employee Retention Tax Credit

Eligible Employers

Employers, including tax-exempt organizations, are eligible for the credit if they operated a trade or business during the calendar year 2020 and experience either: (1) the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or (2) a significant decline in gross receipts.

What constitutes a suspension?

In determining whether a business’s operations are fully or partially suspended due to a government order limiting commerce, travel, or group meetings due to COVID-19, an employer must take into account (1) how the government order affects an employer’s business operations and (2) the period of time during which the government order for the business’ jurisdiction is in place. The order must be from a government with jurisdiction over the employer’s operations.

Examples of governmental orders include an order from a mayor closing all non-essential businesses for a specified time, a state shelter-in-place order for a limited time for all workers other than those employed by an essential business, and a government curfew on residents that affects the operating hours of a business. Companies that can operate by requiring employees to telework are not considered to have a suspension of operations, even if the government order requires the employer to close the workplace.

What is a significant decline in gross receipts?

An employer is considered to have a significant decline in gross receipts for the period beginning with the first calendar quarter in 2020, for which its gross receipts are less than 50 percent of gross receipts from the same calendar quarter in 2019 and ending with the earlier of January 1, 2021, or the first calendar quarter after the quarter for which gross receipts less than 20% percent of gross receipts for the same calendar quarter in 2019.

Qualified Wages

Wages paid to an employee that is subject to Medicare tax and paid after March 12, 2020, and before January 1, 2021, during a period in which the employer had its business operations fully or partially suspended due to a governmental order or a quarter in which the employer experiences a significant decline in gross receipts are eligible for the credit. The group health plan costs increase wages, both the employer’s and the pre-tax employees’ share, properly allocable to wages. This total amount is limited to $10,000.

For employers averaging 100 or fewer full-time employees in 2019, all qualifying wages paid during any period in which the business operations are fully or partially suspended due to a governmental order or any quarter the business is experiencing a significant decline in gross receipts are eligible for the credit.

Suppose an employer averaged more than 100 full-time employees in 2019. In that case, qualified wages are only amounts paid when an employee is not providing services due to the full or partial suspension of the business or during a quarter when there is a significant decline in gross receipts. PTO, vacation, or sick pay is not considered wages paid when the employee does not provide services. If an employee’s wages are maintained but their working hours are reduced, the payment for the hours not worked can be used to support a retention credit. For these employers, qualified wages cannot exceed what the employee would have been paid during the 30 days immediately before the full or partial suspension of operations or the first day of the calendar quarter in which the employer experienced a significant decline in gross receipts. Qualified wages do not include payments of mandated paid FMLA and sick leave pay wages under the Families First Coronavirus Response Act, wages for which the employer claims credit for paid family medical leave under section 45S or a Worker Opportunity Tax Credit employee’s wages. Payments to former employees, including severance payments and wages paid to related parties, are not qualified wages.

Deadline for 2020: April 15, 2024