The Treasury Department and Internal Revenue Service (IRS) today announced the start of the employee retention credit, a refundable tax credit for 50 percent of wages (capped at $10,000) paid by certain employers adversely affected by the coronavirus. The credit was created by the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136).

As explained today by the IRS and Treasury, all employers potentially qualify, except state and local governments and businesses with small business loans. Otherwise, qualified employers 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 percent of the comparable quarter in 2019. Once the employer's gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter.

These metrics are to be calculated each calendar quarter. "Wages paid after March 12, 2020, and before January 1, 2021 are eligible for the credit," the IRS explains. "Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care."

For employers that had more than 100 employees on average in 2019, the credit is allowed "only for wages paid to employees who did not work during the calendar quarter," the IRS notes.

The agency adds that eligible employers will "report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19." 

The IRS today also issued a detailed set of Q&As on the employee retention credit, which is posted here.

The Senate Finance Committee today posted its own set of Q&As on the credit, which is posted here.

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