The New Employee Retention Credit

A federal tax credit helping financially impacted businesses pay employees via refundable employment tax credit

Greg Bocchino

Greg Bocchino

Partner, National Leader, Accounting Methods & Credit Services, KPMG US

+1 212-872-6876
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The new Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several significant business tax and non-tax provisions.

 

Notably, the Employee Retention Credit (ERC) provides immediate cash-flow relief to eligible companies impacted by the COVID-19 pandemic. Such cash-flow relief comes in the form of a refundable employment tax credit, up to $5,000 per impacted employee.

 

What you need to know about the ERC 

 

What does the ERC offer?

  • 50 percent of qualified wages paid to each employee during inoperability
  • $10,000 in maximum wages; therefore, maximum credit is $5,000 per employee

In order to be eligible for the credit, the employer must:

  • Have fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to COVID-19; OR
  • Have experienced a significant decline in gross receipts during the calendar quarter.

 

Helpful definitions 

 

 

 

 

 

Significant decline in gross receipts

A significant decline in gross receipts begins with the first quarter in which an employer’s gross receipts for a calendar quarter in 2020 are less than 50 percent of its gross receipts for the same calendar quarter in 2019. 

Qualified wages

Qualified wages are wages and compensation paid to certain employees between March 13, 2020 and December 31, 2020. Qualified wages include the eligible employer’s qualified health plan expenses.  If the eligible employer averaged more than 100 full-time employees in 2019, qualified wages are the wages paid to the employee for the time that the employee is not providing services due to the circumstances causing the employer to be an eligible employer.

Employee Retention Credit: Seeking Clarity Amid COVID-19
July 2020 | This issue of Chief Tax Officer Insights – Issues Spotlight examines questions tax leader must answer as they weight the benefits against the risks of claiming the Employee Retention Credit.

 

KPMG can help

  • Determine and document if the company is an eligible employer
  • Use automated technology-based solutions to efficiently and properly identify and document impacted employees
  • Calculate and document qualified wages
  • Coordinate with other CARES Act provisions and employment tax benefits to help ensure no double-counting
  • Assist with the procedural requirements to claim the credit.

Featured Webcast

Initial impressions of additional FAQs on the employee retention credit

Read a KPMG report (April 2020) [PDF 295 KB] that provides initial impressions about these FAQs.

 

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