The Coronavirus Aid, Relief and Economic Security (CARES) Act offers a payroll tax credit for up to 50% of wages paid on the first $10,000 of wages paid to each employee (max of $5,000 per employee). However, employers cannot take this credit if they are utilizing the payroll loan part of the Act.

Who is Eligible?

  • Any business that is in operation during the 2020 calendar year AND
  • The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter OR
  • The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter (if not in business during 2019 more guidance will be forthcoming).
  • Non-profits are only eligible based on “fully or partially suspended by government order” as described above (a reduction in donations or revenues does not qualify).
  • The business must NOT be utilizing the “Payroll Protection Program.”

If you are a life-sustaining business and in FULL operation (including telework) then you will NOT qualify for this credit (regardless of number of employees as described below), unless you meet the gross receipts test.

PARTIALLY SUSPENDED – means that you have some people working and others who aren’t OR everyone is working reduced hours. You are staying partially open, but not at full capacity (i.e. restaurants offering takeout only or contractors working some jobs that are allowed to stay open, but shut-down on others).

If you have already met the gross receipts test OR is your business is fully or partially suspended then you can look at the employee limit:

  • If you are OVER 100 employees, you must be PAYING your workers while being fully shutdown and the workers CANNOT be working.
  • If you are UNDER 100 employees, you must be PAYING your workers while being fully or partially shutdown and it doesn’t matter if they are working or not.

The main point that needs emphasis here is that you (as an employer) must being PAYING wages. If your employees are on unemployment and you leave them there until the state is no longer in a shutdown order you will NOT qualify for the credit once they are back to work and you are paying wages again, UNLESS you meet the gross receipts test described above.

Covered Period

  • The coverage period includes wages paid between March 13, 2020 through December 31, 2020.

Amount of Credit

  • 50% of the wages paid by employers due to COVID-19 on the first $10,000 of qualified wages paid to an eligible employee (maximum of $5,000 per employee). Employee wages cannot exceed what they would’ve been during the 30 days before the period.
  • Will include employees’ health insurance costs.
    • It is important to note here that there is not a lot of guidance on what “healthcare costs” mean, however, it does appear that if employees are laid-off of furloughed, but the employer continues to cover health insurance costs there would at least be some credit available.

How Do I Claim the Credit?

This credit will work exactly like the Families First Act whereby you will reduce the 941 liability by these “qualified wages.” Any amount in excess of the 941 liability will be refundable to the employer.