Advanced Payment of Employer Credits Due to COVID-19

COVID-19 News and Updates | Jonathan Gold | Apr 03, 2020

On March 31, 2020, the Treasury Department and the IRS issued IR-2020-62.  This notice describes the procedure for obtaining advanced payment of the Employee Retention Credit under the CARES Act along with the credits for Emergency Sick Leave and Expanded Emergency Family and Medical Leave created under the Family First Coronavirus Response Act.  Form 7200 has been released and should be used to obtain advanced payments of the above credits.

Does my business qualify for the Employee Retention Credit?

All employers, regardless of size qualify for the Employee Retention Credit including tax-exempt organizations.  There are two exceptions:  1) State and local governments and their instrumentalities; and 2) small businesses receiving small business loans.

A qualifying employer is defined as:

  1. A business that has been fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. An Employer with Gross receipts below 50% the comparable 2019 quarter. The employer retains its qualifying status so long as the gross receipts do not exceed 80% of the comparable 2019 quarter.

How is the credit calculated?

50% of qualifying wages up to $10,000 in total paid from March 13, 2020, through December 31, 2020 are eligible for the credit.  Qualifying wages include a portion of the cost of employer provided healthcare.

Determining qualifying wages is based on the average number of employees in 2019:

  • Less than 100 employees: Credit can be claimed on all wages without regard to hours worked.
  • More than 100 employees: Credit can be claimed only for wages paid to employees who did not work during the calendar quarter.

What is the procedure for claiming the credit?

  • Employers can reduce their payroll tax deposits by the amount of the credit. Deposit penalties related to the reduction in deposits will not apply.
  • Employers can claim the excess credit with the filing of their Form 941 beginning with the second quarter.
  • Employers can file IRS Form 7200 (Advanced Payment of Employer Credits Due to COVID-19) to request an advance of any excess credit (credits exceed deposits). 2020 employment tax returns will require a reconciliation of any advanced credits and reduced deposits.