Kelly Bullis: Employee retention credit under CARES Act

Over the last few months, has your business slowed down from the speed of a hare to that of a tortoise? If you have employees and you did not get the PPP Loan or an EIDL loan from the SBA, you may be entitled to the Employee Retention Credit.

You must meet at least one of the following: 1. Your business fully or partially suspended operations during any calendar quarter in 2020 due to government orders on the COVID-19 outbreak. 2. Your business experienced a significant decline (more than 50% from the same quarter in 2019) in gross receipts.

How to compute the credit: Take 50% of the qualified wages you paid to employees after March 12, 2020 and before Jan. 1, 2021. “Qualified Wages” are limited to the first $10,000 of wages paid to each worker during the March 12, 2020 to Jan. 1, 2021 period. You basically get a maximum credit per employee of $5,000 for that period.

“Qualified Wages” include certain health plan costs, and actual gross wages paid.

If your company averaged more than 100 full-time employees during 2019, you can only count the total wages that would have been paid for the 30 days preceding March 12, 2020. If your company averaged less than 100 full-time employees during 2019, you can count whatever actual wages you paid your employees during the March 12, 2020 to Jan. 1, 2021 period.

How you can get paid the credit fast, is to have it applied against the form 941 taxes owed. (In other words, only make required payroll tax deposits after taking the quarterly credit into account.) The credit computation is a part of filing the form 941.

Example: You have 10 employees, which cost you a monthly Health Insurance Premium of $2,000. Five employees were laid off (but you keep paying their Health Insurance), and the remaining employees were paid a total of $20,000 a month in cash wages. Thus $22,000 ($2,000 plus $20,000) a month equals $66,000 for the quarter ending June 30. When you file the second quarter Form 941 by July 31, your potential credit is 50% of that $66,000 amount, or $33,000.

Your maximum credit for your five employees is $5,000 x 5 = $25,000. Thus, you get to take the maximum credit of $25,000 for the second quarter and have no credit left to be used in the third or fourth quarters of 2020 unless you hired back any of the five employees you laid off earlier. Each employee is worth a maximum of $5,000 credit. So there is an extra incentive to hire some or all your employees back.

Did you hear? Psalm 40:17a says, “As for me, I am poor and needy, but the Lord takes thought for me.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.