On Friday, March 27, 2020, President Trump signed into law the bipartisan Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). This article addresses certain key employer tax considerations.
Employee Retention Credit (“ERC”)
The law provides for a refundable ERC against the 6.2 percent employer portion of social security submitted quarterly and exempts organizations that may qualify for the credit.
The ERC is a new payroll tax credit for eligible employers operating a trade or business in 2020 that pay wages when:
- Their business operations are suspended due to an order from an “appropriate government authority” limiting commerce, travel, or group meetings in response to COVID-19
- Their gross receipts experienced a significant decline (defined as 50 percent or greater) for a quarter as compared to the same time period in 2019.
The ERC is computed quarterly. Eligible employers may claim a 50 percent credit on “qualified wages” of each employee, limited to $10,000 (including group health insurance benefits) per employee that are paid or incurred from March 13, 2020 through December 31, 2020.
The amount of qualified wages depends on employer size.
For employers who had an average number of 100 or fewer full-time employees in 2019, all employee wages are eligible (up to $10,000 per employee), regardless of whether the employee is furloughed.
For employers who had more than 100 full-time employees as the average number in 2019, only the wages of affected employees who are not working because of either a suspension in operations or a substantial drop in gross receipts are eligible for the credit.
Employers taking a small business interruption loan are not eligible. Other rules and restrictions apply.
Delay in Payment of Social Security Tax
The CARES Act will allow employers to defer paying their portion of the social security payroll tax. The deferral period began as soon as the CARES Act was signed into law and runs through December 31, 2020. The amounts will ultimately have to be paid over to the Treasury in two installments: half of the deferred amount of payroll taxes from 2020 will be due December 31, 2021, with the remaining half due December 31, 2022. Similar relief is provided for self-employed individuals.
For additional information regarding the items above or any other aspect of the CARES Act, please contact your BST tax professional.