Covid-19 Tax Updates For Business

Employee Retention Credit

On March 27, 2020, Congress enacted The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is designed to encourage employers affected by the global health crisis to keep employees on their payroll, even if they are experiencing financial difficulties due. The IRS will provide eligible employers with an employee retention tax credit (Employee Retention Credit) to cover qualified wages, including qualified health plan costs.

The second CARES Act legislation enacted into law on December 27, 2020 extends the retention credit to June 20, 2021. The new law expands the provisions starting January 1, 2021 so that:

  1. It applies to $10,000 of wages per employee, per quarter (not year)
  2. The credit rate increases from 50%, for a maximum $5,000 credit per year, to 70% of wages, for a maximum of $7,000 per quarter.
  3. A gross income reduction is now defined as a 20% cut, not 50%.
  4. Eligibility can now be determined using prior quarter gross receipts.
  5. The credit is available for businesses with up to 500 employees.
  6. Businesses that were not existence in 2019 but between January 1, 2020 and February 15, 2020 are now eligible.

This new legislation makes changes that are retroactive to the effective date of the original CARES Act, March 27, 2020.  Business that received PPP loans and therefore were ineligible for retention credits under the earlier law may be able to qualify for credit on wages that were not paid with PPP loan proceeds. Additionally, employers who paid group health care costs for employees who were not paid other wages can now consider premiums paid as qualified wages.

For more information about the Employee Retention credit click here.

COVID-19 Resource Links

Internal Revenue Service

Commonwealth of Pennsylvania

State of New Jersey

New Jersey Emergency Business Assistance

New Jersey Treasury – Division of Taxation

Families First Coronavirus Response Act: Q&A