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Financial Services Law Insights and Observations

Treasury launches Employee Retention Credit to encourage employment

Federal Issues Department of Treasury IRS Covid-19 Health Care

Federal Issues

On March 31, the Treasury Department and the Internal Revenue Service launched the Employee Retention Credit, a resource designed to encourage businesses to keep employees on their payroll during the Covid-19 outbreak. The resource is a refundable tax credit of 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by Covid-19. Employers of all sizes, including tax-exempt organizations may qualify to receive the employee retention credit if either: (i) the employer’s business is fully or partially suspended by government order due to Covid-19 during the calendar quarter; or (ii) the employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019 they no longer qualify after the end of that quarter. State and local governments and their instrumentalities, and small businesses who take Small Business Loans are not eligible for the employee retention credit. The credit applies to wages paid after March 12, 2020 and before January 1, 2021, and cover both cash payments and a portion of the cost of employer provided health care.