We’ve heard a lot of talk, speculation and venting about the two big programs in the CARES Act, the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan (“EIDL”). We’ve written about those programs elsewhere.
But there’s one big benefit hidden in here that only applies to businesses that have been closed by government order.
Section 2301, the “Employee Retention Credit for Employers Subject to Closure due to COVID-19,” has a big tax credit for you that you’ll receive from the IRS if your business qualifies.
Who qualifies?
- Businesses whose operations were fully or partially suspended during any given calendar quarter by government order, and
- gross receipts are less than 50% of gross receipts when compared to the same quarter of 2019.
- Once a business qualifies in any given quarter, they will continue to qualify until their gross receipts exceed 80% of the comparison quarter from last year.
- You cannot have received a loan under the Paycheck Protection Program.
How much is the credit?
- Up to 50% of an employee’s wages for the period that the employer qualifies, up to $5,000 per employee, starting on March 12, 2020.
How do I apply?
- The IRS has published a form specifically dedicated to requesting a tax credit due to COVID-19, Form 7200. Unlike some other agencies, the IRS has actually taken the time to lay out instructions for applying for the credit and who qualifies. You may file the form during the month after the end of the calendar quarter for which you are claiming the credit, but you cannot file after you file Form 941 for the end of the fourth quarter of 2020.
Example
A retail store is shuttered due to a state stay-at-home order on March 23, 2020. The store employs two cashiers at $30,000 per year ($7,500 per quarter) and one manager at $48,000 ($12,000 per quarter). The store sees a 50% decline in gross receipts in the second quarter of 2020 (4/1/20-6/30/20). Gross receipts do not exceed 80% of the same quarter last year until the fourth quarter of 2020.
The employer qualifies for a retention tax credit in the second and third quarters. The business should Take 50% of the wages paid for that quarter up to $10,000 per employee, which is your credit ($7,500 + 7,500 + 10,000 = $25,000). The business may keep the payroll tax remittance it owes the government and file Form 7200 to claim the difference as a refund.
If the business does not file Form 7200, it will be able to claim the credit in its 12/31/2020 Form 941.
Christian Carson
Christian Carson is the founding attorney of Carson Law Firm LLC in Cleveland, Ohio. He holds degrees in law and accountancy from Case Western Reserve University. With a strong background in accounting and finance, Christian focuses on real estate, probate, and business law. He is committed to providing practical legal solutions for individuals and small business owners.
