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Evan M. Kalfus (Lead Tax Partner) and David W. Sutliff (Managing Director) of KPMG have been keeping their fingers firmly on the pulse of our local business community. With the impact of COVID-19 being felt by all businesses in and around the 757, Evan and David are navigating a broad range of interrelated issues that span from keeping employers, their employees, and customer safe, shoring-up cash and liquidity, reorienting operations and navigating complicated government support programs.

Evan and David's "5 Things You Must Know About the Employee Retention Credit" can be found on our blog. Be sure to check it out. 

Evan and David will be hear on Friday May 8th from 1 PM to 2 PM to take your questions and hear your concerns. Leave a question below!

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Alisa Crider acrider
Hi Evan and Dave! Welcome to our 757 COVID-19 Business Recovery Forum. We greatly appreciate you taking the time to post your blog and answer a few questions. I know as leading tax experts in our community you all are handling a myriad of issues for your clients right now. So, thank you for joining us!
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dsutliff
Thank you for having us.  We are happy to be on and discussing this topic.
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Alisa Crider acrider
Unlike some CARES Act incentives, the Employee Retention Credit is seemingly available to all employers regardless of size, including tax-exempt organizations. Can you please clarify on what factors need to be met to receive the credit?
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dsutliff

There are basically 2 points that must be met for qualification – 1) the employer must be considered an “eligible employer” and 2) the wages paid must be considered “qualifying wages”.  Per the IRS FAQ document:

Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.
Qualified wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”)) and compensation (as defined in section 3231(e) of the Code) paid by an Eligible Employer to some or all employees after March 12, 2020, and before January 1, 2021.  Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.  The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000 
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Alisa Crider acrider
Thanks for explaining this! 

Even though the size of a business doesn’t effect overall eligibility,  can you take a moment to explain the difference between business with 100+ employees and businesses with less than 100 employees?
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Evan Kalfus 
Again per IRS's guidance 

If an Eligible Employer averaged more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services due to an economic hardship, specifically, either (1) a full or partial suspension of operations by order of a governmental authority due to COVID-19, or (2) a significant decline in gross receipts.  For these employers, qualified wages taken into account for an employee may not exceed what the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship described in (1) or (2) above. 

If the Eligible Employer averaged 100 or fewer full-time employees in 2019, qualified wages are the wages paid to any employee during any period of economic hardship described in (1) or (2) above

 

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Alisa Crider acrider
That makes sense. Thank you, Evan.

At this point, many businesses have a number of routes they can take for COVID-19 relief.  How does the Employee Retention Credit Interact with their COVID-19 relief programs?
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dsutliff

Per IRS Guidance - There are 2 other COVID related programs that may impact the ECR.  1) An employer may not receive the Employee Retention Credit if the employer receives a PPP loan that is authorized under the CARES Act. An Eligible Employer that receives a PPP loan, regardless of the date of the loan, cannot claim the Employee Retention Credit.  If an employer receives the loan and returns the funds, there could be ECR eligibility.  2) If the employer is also taking advantage of the Payroll Tax Deferral Program, they can participate in ECR, though the method of taking the credit may be impacted.

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dsutliff
Additionally, qualified wages must be coordinate with other credit programs (such as leave credits available under the Families First Coronavirus Response Act).  In addition, coordination with non-COVID related credits such as Section 45S credits and work opportunity tax credits must be considered.
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Alisa Crider acrider
For qualifying businesses, how is the Employee Retention Credit calculated exactly?
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Evan Kalfus 

The credit equals 50 percent of the qualified wages (including qualified health plan expenses) that an Eligible Employer pays in a calendar quarter. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for qualified wages paid to any employee is $5,000 .  There are different rules depending upon the number of employees (over 100 versus below 100) that must also be considered.  The exact application of these rules, particularly with respect to businesses with over 100 employees is particularly nuanced as provided in the IRS FAQs.

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Amy Jordan ajordan
dsutliff wrote:

Per IRS Guidance - There are 2 other COVID related programs that may impact the ECR.  1) An employer may not receive the Employee Retention Credit if the employer receives a PPP loan that is authorized under the CARES Act. An Eligible Employer that receives a PPP loan, regardless of the date of the loan, cannot claim the Employee Retention Credit.  If an employer receives the loan and returns the funds, there could be ECR eligibility.  2) If the employer is also taking advantage of the Payroll Tax Deferral Program, they can participate in ECR, though the method of taking the credit may be impacted.

Can an employee that has taken a PPP use the credit for a different period of time so it does not overlap or for a different group of employees not covered under the PPP?  
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Evan Kalfus 
good question. One that the IRS has addressed in their FAQ guidance #80:

  1. If multiple entities are treated as a single employer under the aggregation rules, and only one of these entities has received a Paycheck Protection Program (PPP) loan, does this mean that all of the other entities in the aggregated group are not eligible for the Employee Retention Credit?

Yes. An employer that is treated as a single employer under the aggregation rules, may not receive the Employee Retention Credit if any member of the employer's aggregated group receives a PPP loan. For more information on the aggregation rules, see Determining Which Entities are Considered a Single Employer Under the Aggregation Rules

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Alisa Crider acrider
There are so many potential “grey areas” for many small and medium sized businesses in our region. So if a governmental order requires an employer to close its workplace for certain purposes, but the workplace may remain operational for limited purposes – like a restaurant switching to a take-out-only model - is the employer considered to have a suspension of operations?
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dsutliff

 This is a good question and there is not a one size fits all answer.  Rather, individual fact patterns will need to be addressed.  Please reference the IRS FAQs posted online for some specific examples.  In particular, current IRS  Q/A 34, example 1 addresses the restaurant example.

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Alisa Crider acrider
That's helpful. Thanks, Dave.

If an employer is subject to a governmental order to fully or partially suspend its business operations and the order is subsequently lifted, is the employer considered to have business operations that were suspended?
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Evan Kalfus 
Another great question.

Yes, but only for periods during the calendar quarters in which the trade or business operations were fully or partially suspended.  If the order was effective for a portion of the calendar quarter, then the employer is an Eligible Employer for the entire calendar quarter but can only claim a credit for wages paid during the period the order is in force.
  See current IRS Q/A 38 provides additional detail. 
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Evan Kalfus 
here is the link to IRS FAQs referenced above. 

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-determining-when-an-employers-trade-or-business-operations-are-considered-to-be-fully-or-partially-suspended-due-to-a-governmental-order-faqs
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Alisa Crider acrider
Thank you, Evan!
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Jonathan Holman JZHolman
dsutliff wrote:
Additionally, qualified wages must be coordinate with other credit programs (such as leave credits available under the Families First Coronavirus Response Act).  In addition, coordination with non-COVID related credits such as Section 45S credits and work opportunity tax credits must be considered.

Are there any eligibility interactions with other credits that would allow partial eligibility for the ECR? Also, where specifically can an employer find a listing of the other credits that would affect ECR eligibility?
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dsutliff
Jonathan - thank you for your question.  Per existing IRS guidance there is no partial eligibility allowed for the ERC.  IRS FAQ's are the best source for guidance see FAQ's:  https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act  
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Alisa Crider acrider
Thank you Evan and Dave for the great discussion! This was very helpful information. Thanks again for all the good work KPMG is doing in our community!
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dsutliff
Jonathan - Specifically review Questions 82 and 83.
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Evan Kalfus 
Thanks to you as well. Let us know how we can help. These credits can really help some local business that qualify. 
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