Employee Retention Credit (Section 2301)
The Act allows employers that qualify pursuant to criteria described below to take a credit against the employer portion of Social Security (but not Medicare) taxes equal to 50 percent of qualified wage and health benefits paid in 2020 after March 12, 2020, subject to a maximum qualified wage/health benefit amount of $10,000 per employee (which means that the credit is limited to $5,000 per employee).
The credit is available to an employer for any calendar quarter:
- during which the employer’s operations were fully or partially suspended by the government due to the coronavirus (COVID-19) crisis; or
- during any period:
- starting with any calendar quarter during which the employer’s gross receipts are less than 50 percent of gross receipts in the same quarter in 2019, and
- ending with calendar quarter following the first quarter in which the employer’s gross receipts are more than 80 percent of gross receipts in the same quarter in 2019.
For employers with more than 100 full-time employees, eligible wages include only wages paid to employees who are prevented from providing services due to the shutdown or the decline in gross receipts.
For employers with 100 or fewer full-time employees, eligible wages include all wages paid to employees during the relevant periods, even if the employee is working.
Employers who take a small business interruption loan are not eligible for this credit.
Credit against employment taxes
In the case of an eligible employer, there shall be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 50 percent of the qualified wages with respect to each employee of such employer for such calendar quarter.
Eligible employer
“Eligible employer” means any employer—
(i) which was carrying on a trade or business during calendar year 2020, and
(ii) with respect to any calendar quarter, for which—
- (I) the operation of the trade or business described in clause (i) is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to the coronavirus disease 2019 (COVID–19), or
- (II) such calendar quarter is within the period described below.
Period described in this subparagraph is the period—
- (i) beginning with the first calendar quarter beginning after December 31, 2019, for which gross receipts (within the meaning of Section 448(c) of the Internal Revenue Code of 1986 (the “Code”) for the calendar quarter are less than 50 percent of gross receipts for the same calendar quarter in the prior year, and
- (ii) ending with the calendar quarter following the first calendar quarter beginning after a calendar quarter described in clause (i) for which gross receipts of such employer are greater than 80 percent of gross receipts for the same calendar quarter in the prior year.
Tax-exempts
In the case of an organization which is described in Section 501(c) of the Code and exempt from tax under Section 501(a) of such Code, clauses (i) and (ii)(I) of subparagraph (A) shall apply to all operations of such organization.
Qualified wages
The amount of qualified wages with respect to any employee which may be taken into account by the eligible employer for all calendar quarters shall not exceed $10,000.
“Qualified wages” means—
(i) in the case of an eligible employer for which the average number of full-time employees (within the meaning of Section 4980H of the Code) employed by such eligible employer during 2019 was greater than 100, wages paid by such eligible employer with respect to which an employee is not providing services due to circumstances described in subclause (I) or (II) of paragraph (2)(A)(ii), or
(ii) in the case of an eligible employer for which the average number of full-time employees (within the meaning of Section 4980H of the Code) employed by such eligible employer during 2019 was not greater than 100—
- (I) with respect to an eligible employer described in subclause (I) of paragraph (2)(A)(ii), wages paid by such eligible employer with respect to an employee during any period described in such clause, or
- (II) with respect to an eligible employer described in subclause (II) of such paragraph, wages paid by such eligible employer with respect to an employee during such quarter.
Such term shall not include any wages taken into account under Section 7001 or Section 7003 of the Families First Coronavirus Response Act.
Limitation on qualified wages
Qualified wages paid or incurred by an eligible employer described in subparagraph (A)(i) with respect to an employee for any period described in such subparagraph may not exceed the amount such employee would have been paid for working an equivalent duration during the 30 days immediately preceding such period.
Limitation on credit to employment taxes
Credit allowed with respect to any calendar quarter shall not exceed the applicable employment taxes (reduced by any credits allowed under subsections (e) and (f) of Section 3111 of the Code and Sections 7001 and 7003 of the Families First Coronavirus Response Act) on the wages paid with respect to the employment of all the employees of the eligible employer for such calendar quarter.
Refunds of excess credit
If the amount of the credit the limitation described above for any calendar quarter, such excess shall be treated as an overpayment that shall be refunded under Sections 6402(a) and 6413(b) of the Code.
Treatment
For purposes of Section 1324 of title 31, United States Code, any amounts due to the employer under this paragraph shall be treated in the same manner as a refund due from a credit provision referred to in subsection (b)(2) of such Section.
Applicable employment taxes
Means the following:(A) The taxes imposed under Section 3111(a) of the Code; and(B) so much of the taxes imposed under Section 3221(a) of such Code as are attributable to the rate in effect under Section 3111(a) of such Code.
Allowance for certain health plan expenses
The term “qualified wages” shall include so much of the eligible employer’s qualified health plan expenses as are properly allocable to such wages.
For purposes of this paragraph, the term “qualified health plan expenses” means amounts paid or incurred by the eligible employer to provide and maintain a group health plan (as defined in Section 5000(b)(1) of the Code), but only to the extent that such amounts are excluded from the gross income of employees by reason of Section 106(a) of such Code.
Qualified health plan expenses shall be allocated to qualified wages in such manner as the Secretary may prescribe. Except as otherwise provided by the Secretary, such allocation shall be treated as properly made if made on the basis of being pro rata among employees and pro rata on the basis of periods of coverage (relative to the periods to which such wages relate).
Wages
Means wages (as defined in Section 3121(a) of the Code) and compensation (as defined in Section 3231(e) of such Code).
Aggregation
All persons treated as a single employer under subsection (a) or (b) of Section 52 of the Code, or subsection (m) or (o) of Section 414 of such Code, shall be treated as one employer for purposes of this Section.
Election not to have section apply
Section not apply with respect to any eligible employer for any calendar quarter if such employer elects (at such time and in such manner as the Secretary may prescribe) not to have this Section apply.
Application
Applies to wages paid after March 12, 2020, and before January 1, 2021.
Delay of Payment of Employer Payroll Taxes (Section 2302)
The Act allows all employers and self-employed individuals to delay deposit of the employer portion of Social Security taxes (or the equivalent portion of self-employment taxes) otherwise due this year. 50 percent of the deferred taxes are permitted to be delayed until December 31, 2021 and the other 50 percent of the deferred taxes are permitted to be delayed until December 31, 2022.
Delay of payment
Payment for applicable employment taxes for the payroll tax deferral period shall not be due before the applicable date.
Deposits
Notwithstanding Section 6302 of the Code, an employer shall be treated as having timely made all deposits of applicable employment taxes that are required to be made (without regard to this Section) for such taxes during the payroll tax deferral period if all such deposits are made not later than the applicable date. However, foregoing shall not apply to any taxpayer if such taxpayer has had indebtedness forgiven under Section 1106 of the CARES Act with respect to a loan under paragraph (36) of Section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by Section 1102 of the CARES Act, or indebtedness forgiven under Section 1109 of the CARES Act.
SECA
Payment for 50 percent of the taxes imposed under Section 1401(a) of the Code for the payroll tax deferral period shall not be due before the applicable date.
Estimated taxes
For purposes of applying Section 6654 of the Code to any taxable year which includes any part of the payroll tax deferral period, 50 percent of the taxes imposed under Section 1401(a) of such Code for the payroll tax deferral period shall not be treated as taxes to which such Section 6654 applies.
Applicable employment taxes
Means the following:
(A) The taxes imposed under Section 3111(a) of the Code.
(B) So much of the taxes imposed under Section 3211(a) of such Code as are attributable to the rate in effect under Section 3111(a) of such Code.
(C) So much of the taxes imposed under Section 3221(a) of such Code as are attributable to the rate in effect under Section 3111(a) of such Code.
Payroll tax deferral period
Means the period beginning on the date of the enactment of the CARES Act and ending before January 1, 2021.
Applicable date
Means:
(A) December 31, 2021, with respect to 50 percent of the amounts to which subsection (a) or (b), as the case may be, apply, and
(B) December 31, 2022, with respect to the remaining such amounts.
Modifications for Net Operating Losses (Section 2303)
The Act permits net operating losses (NOLs) from 2018, 2019, and 2020 to be carried back five years. Previously, NOLs from those years could not be carried back. Notably, NOLs carried to years before 2018 can offset income that was taxable at pre-tax reform federal corporate rates which were up to 35 percent (currently 21 percent).
Also, for 2018, 2019 and 2020, the Act removes the limitation which restricted use of NOLs to 80 percent of taxable income, thus permitting up to 100 percent of taxable income for such years to be offset by NOLs.
These carrybacks cannot be used against the Internal Revenue Code one-time “repatriation” tax under section 965 if carried back to the year in which it was imposed. Taxpayers can elect to exclude any taxable year in which they were subject to the repatriation tax from the carryback period.
Modification of Limitation on Losses for Taxpayers Other Than Corporations (Section 2304)
The Act defers until 2021 the application of the “excess business loss” rules which were applicable to non-corporate taxpayers. These rules generally restricted use of losses from a trade or business to (i) the income of that business, plus (ii) $250,000 threshold (or $500,000, if filing jointly). Any losses in excess of this amount were required to be carried forward as an NOL.
Modification of Credit for Prior Year Minimum Tax Liability of Corporations (Section 2305)
The 2017 tax reform act repealed the corporate alternative minimum tax (AMT), and granted corporate taxpayers refundable credits to recover certain AMT taxes paid prior to the repeal. The tax credits were recoverable over four years starting in 2018. The Act will allow corporate taxpayers to immediately accelerate recovery of these AMT tax credits. Such credits can be recovered either over their 2018 and 2019 tax years, or entirely in 2018.
Modifications of Limitation on Business Interest (Section 2306)
The 2017 tax reform act imposed a cap on the deductibility of net interest expense generally equal to 30 percent of adjusted taxable income (which is conceptually similar to EBITDA).
This 30 percent threshold is raised to 50 percent for 2019 and 2020. In addition, taxpayers can elect to use their 2019 income to determine their 2020 interest limitation.
Technical Amendments Regarding Qualified Improvement Property (Section 2307)
The 2017 Tax Reform Act allowed taxpayers to immediately expense 100 percent of certain depreciable property. A technical error in the Tax Reform Act required “qualified improvement property” (generally, improvements made to the interior of certain business facilities) to be depreciated over 39 years. The Act corrects this error and allows such property to benefit from immediate expensing.
