A Closer Look at the CARES Act Employee Retention Tax Credit

A Closer Look at the CARES Act Employee Retention Tax Credit

We answer the top questions that ADP has been receiving about some of these provisions, and provide a link to view the rest.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, contains over $2 trillion for economic stimulus, including cash payments to individuals, expanded unemployment benefits, retirement distributions, payroll tax deferrals and tax credits, corporate relief, and economic support for the healthcare industry in order to combat the COVID-19 crisis.

Included in the Act is an employee retention credit for employers impacted by the COVID-19 crisis. There is significant detail to this credit as well as interplay between other provisions of the act, such as the ability for an employer to defer payment of certain employment taxes. Here, we answer the top questions that ADP has been receiving about some of these provisions.

Q. Who is an eligible employer?

A. An eligible employer is an employer who has been carrying on a trade or business during 2020 that meets one of the following two criteria:

  • The employer's trade or business is fully or partially suspended during a calendar quarter due to orders from an appropriate government authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) as a result of COVID-19; or
  • The employer experiences a significant decline in gross receipts.

Q. What constitutes fully or partially suspended?

A. The term is not defined by the CARES Act, so the determination will likely require a facts and circumstances test for each employer. The CARES Act gives examples of limits on commerce, travel, and group meetings as examples of suspended operations.

Curfews, quarantines, shelter-at-home orders, closing of non-essential businesses, and limitation on capacity for public events are all examples of actions that could result in full or partial suspension.

Q. What is included in the definition of qualified wages?

A. Qualified wages are wages paid by an eligible employer with respect to which an employee is not providing services (see below for definition) due to either a full or partial suspension of operations, or a significant decline in gross receipts. A special rule for employers with 100 or fewer full-time employees is discussed below.

"Wages" are broadly defined as generally including all remuneration for employment, including cash value of all remuneration (including benefits) paid in any medium other than cash.

Q. If the employer has claimed the Work Opportunity Tax Credit (WOTC) on the employee, can the employer also claim the CARES Act employee retention credit on the employee?

Yes, with some limitations. The CARES Act states that an employee cannot be included in the employee retention credit if the employer has also claimed WOTC on that employee in the same period.

Q. If the employer is pursuing a small business interruption loan as provided by the CARES Act, is it still eligible for the CARES Act employee retention credit?

A. No. The CARES Act prohibits an employer from claiming the employee retention credit if the employer also receives a covered loan under Section 1102 of the CARES Act ("Paycheck Protection Program"). The Secretary of the Treasury is also authorized to issue guidance regarding recapture provisions if the employer receives a covered loan after initially claiming the employee retention credit.

Read the complete list of Frequently Asked Questions regarding the CARES Act Employee Retention Credit.

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The information provided by ADP is for general informational purposes only and is not legal, accounting or tax advice. The information and services ADP provides should not be deemed a substitute for the advice of such professionals who can better address your specific concern and situation. Any information provided here is by nature subject to revision and may not be the most current information available on the subject matter discussed.