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The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.
For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19.
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
2. a significant decline in gross receipts.
A significant decline in gross receipts begins:
• on the first day of the first calendar quarter of 2020
• for which an employer’s gross receipts are less than 50% of its gross receipts
• for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
• on the first day of the first calendar quarter following the calendar quarter
• in which gross receipts are more than of 80% of its gross receipts
• for the same calendar quarter in 2019.
The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.
Qualified wages
The definition of qualified wages depends on how many employees an eligible employer has.
If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts. These employers can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.
If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, including health care costs, (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.
Impact of other credit and relief provisions
An eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:
• If an employer receives a Small Business Interruption Loan under the Paycheck Protection Program, authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
• Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
• Wages counted for this credit can’t be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
• Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.
Claiming the credit
In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of social security tax but the excess is refundable under normal procedures.
In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
The Internal Revenue Service today posted updated FAQs about recent legislation that extended and amended tax relief to certain small- and mid-sized employers under the Families First Coronavirus Response Act (FFCRA). The FAQs are available at COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs.
The updates to the FAQs cover how the COVID-related Tax Relief Act of 2020, enacted December 27, 2020, extends the availability of the tax credits created by the FFCRA to eligible employers for paid sick and family leave provided through March 31, 2021, as well as other amendments to the credits.
The paid sick and family leave credits, which previously were available only until the end of 2020, have been extended for periods of leave taken through March 31, 2021.
The paid sick leave credit is designed to allow qualified businesses – those with fewer than 500 employees and who pay “qualified sick leave wages” – to get a credit for wages or compensation paid to an employee who is unable to work (including telework) because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis. Eligible employers may claim credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
In addition, an eligible employer can receive the paid sick leave credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the coronavirus. Eligible employers may claim the credit for paid sick leave provided to an employee for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay, or up to $200 per day and $2,000 in total.
Employers are also entitled to a paid family leave credit for paid family leave provided to an employee equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Eligible employers are entitled to immediately receive a credit in the full amount of the paid sick leave and family leave plus related health plan expenses and the employer’s share of Medicare tax on the leave provided through March 31, 2021. The refundable credit is applied against certain employment taxes on wages paid to all employees.
Eligible employers may claim the credits on their federal employment tax returns (e.g., Form 941, Employer’s Quarterly Federal Tax Return), but they can benefit more quickly from the credits by reducing their federal employment tax deposits. If there are insufficient federal employment taxes to cover the amount of the credits, an eligible employer may request an advance payment of the credits from the IRS by submitting a Form 7200, Advance Payment of Employer Credits Due to COVID-19.
The FTB has just clarified that EIDL (Economic Injury Disaster Loan) advance grants are taxable to California. AB 1577 (Ch. 20-39) enacted a California exclusion for PPP loan forgiveness, essentially mirroring the federal exclusion adopted by the CARES Act. However, the federal exclusion for EIDL grants was enacted by the Consolidated Appropriations Act, which California has not conformed to. California would have to enact new legislation to conform to this exclusion.
The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes. These FAQs address specific issues related to the deferral of deposit and payment of these employment taxes. These FAQs will be updated to address additional questions as they arise.
The Treasury Department and the Internal Revenue Service are providing special payment relief to individuals and businesses in response to the COVID-19 Outbreak. The filing deadline for tax returns remains April 15, 2020. The IRS urges taxpayers who are owed a refund to file as quickly as possible. For those who can’t file by the April 15, 2020 deadline, the IRS reminds individual taxpayers that everyone is eligible to request a six-month extension to file their return.
Sacramento – The Franchise Tax Board (FTB) today announced special tax relief for California taxpayers affected by the COVID-19 pandemic. Affected taxpayers are granted an extension to file 2019 California tax returns and make certain payments until June 15, 2020, in line with Governor Newsom’s March 12 Executive Order.
“During this public health emergency, every Californian should be free to focus on their health and wellbeing,” said State Controller Betty T. Yee, who serves as chair of FTB. “Having extra time to file their taxes helps allows people to do this, as the experts work to control the spread of coronavirus.”
An outbreak of respiratory illness caused by a new coronavirus (COVID-19) has been identified starting in Wuhan, China. There is no evidence of widespread transmission of COVID-19 in California at this time. While investigations to learn more about the virus are ongoing, workers and employers should review their health and safety procedures to help prevent exposure to the virus.
Frequently Asked Questions
Visit Coronavirus 2019 FAQs for answers to specific questions you may have about COVID-19 and what programs and benefits may be available to you.
The EDD provides a variety of support services to individuals affected by COVID-19 in California. For faster and more convenient access to those services, we encourage the use of our online options.
An outbreak of respiratory illness caused by a new coronavirus (COVID-19) has been identified starting in Wuhan, China. There is no evidence of widespread transmission of COVID-19 in California at this time. While investigations to learn more about the virus are ongoing, workers and employers should review their health and safety procedures to help prevent exposure to the virus.
Frequently Asked Questions
Visit Coronavirus 2019 FAQs for answers to specific questions you may have about COVID-19 and what programs and benefits may be available to you.
The EDD provides a variety of support services to individuals affected by COVID-19 in California. For faster and more convenient access to those services, we encourage the use of our online options.
The Internal Revenue Service issued proposed regulations today for a provision of the Tax Cuts and Jobs Act, which limits the business interest expense deduction for certain taxpayers. Certain small businesses whose gross receipts are $25 million or less and certain trades or businesses are not subject to the limits under this provision.
For tax years beginning after Dec. 31, 2017, the deduction for business interest expense is generally limited to the sum of a taxpayer’s business interest income, 30 percent of adjusted taxable income and floor plan financing interest. Taxpayers will use new Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year.
CalSavers Retirement Savings Program (CalSavers) is a state-run retirement savings program for private-sector employees whose employers do not offer a retirement program. CalSavers brings a retirement savings option to employees who don’t currently have one; it is designed as a simple way for employees to save with minimal action and no fees for employers. Employee participation is voluntary and they can opt in or out at any time. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer.
Any employer with at least five employees that doesn’t already offer a qualified workplace retirement savings plan will be required by California Law to facilitate employee access to CalSavers. The rule applies to both non-profit and for- profit employers.
CalSavers is officially open for registration as of July 1, 2019.
The three-year phased rollout will include staggered deadlines for registration based on employer size. Eligible employers can register for CalSavers at any time and must register by the following deadlines based on employee count.
| Size of business | Deadline |
| Over 100 employees | June 30, 2020 |
| Over 50 employees | June 30, 2021 |
| Five or more employees | June 30, 2022 |
Assembly Bill (AB) 5, recently signed into law, replaces the common law test with the ABC test to determine whether a worker is an employee or independent contractor in California. Effective January 1, 2020, hiring entities are required to classify workers as employees unless they meet all conditions of the ABC test:
California will impose an individual health care mandate penalty if the federal government doesn’t.
The Legislature has enacted SB 78 (Ch. 19-38), which requires California residents to maintain monthly health care insurance coverage or be subject to penalties. California’s new mandate is similar to the federal program adopted under the original Affordable Care Act, ensuring that plans maintain certain baseline coverage and subjecting individuals to penalties if they fail to obtain health insurance. The bill also provides subsidies to keep the insurance “affordable.” Unlike the ACA, there are no employer penalties for failure to provide health insurance. The program is being jointly administered by the California Health Benefit Exchange (the agency that runs Covered California) and the Franchise Tax Board. Because the bill was enacted on June 27, 2019, there are still a lot of details to be worked out. This article provides a broad overview of the new law and discusses some of the questions that still need to be answered.
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