How do I know if my business qualifies for the employee retention credit due to COVID-19?
COVID-19 has created a huge impact on the US economy. The employee retention credit is given to the qualifying employers in an intention to retain the employees despite the economic hardship they are facing due to the pandemic. The IRS makes the Employee Retention Credit available to all employers regardless of size, including tax-exempt organizations. All the qualifying businesses can file Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to request an advance payment of the tax credits.
The qualifying business/employers must fall into one of two categories to request an advance payment:
1)The qualifying business is fully or partially suspended by the government due to COVID-19 during the calendar quarter
2)The employer’s gross receipts fall below 50 percent of the comparable quarter in 2019. When the employer’s gross receipts rise above 80 percent of the comparable quarter in 2019 they no longer qualify after the end of that quarter.
For instance, say an employer reports $500,000 as Gross Receipts in each of the 4 quarters of 2019. In Quarter 1 2020, if the Gross Receipts fall below $250,000 (50% of $500,000 reported in Quarter 1 2019) they qualify for the employee retention credit for the quarter. If the economic situations improve by Quarter 3 2020 and the business makes over $400,000 (80% of $500,000 reported in Quarter 3 2019), then the business/employer does not qualify for the credit at the end of Quarter 3 2020.
The qualified wages paid to employees after March 12, 2020, and before January 1, 2021, are eligible for the refundable tax credit. A credit equivalent to 50% of qualified wages paid to employees is given with a maximum of $10,000 in qualified wages for each employee for the cumulative total of all calendar quarters.