6. What are "qualified wages"?
by Admin
Posted on 07-11-2022 01:13 PM
By alan greenwell, cpa & mst, shareholder, brixey & meyer
the coronavirus aid, relief, and economic security (cares) act contains a business relief provision known as the employee retention credit (erc), a refundable payroll tax credit for “qualified wages” paid to retained full-time employees from march 13, 2020, to dec. 31, 2020.
The purpose of the erc was to encourage employers to keep employees on the payroll, even if they were not working during the covered, covid-19, period. The erc was further expanded under both the consolidated appropriations act, 2021 and the american rescue plan act, and can now be claimed through dec.
The coronavirus aid, relief, and economic security act (“cares act”) was signed into law on march 27, 2020, to address the negative economic impact of the covid-19 pandemic. Within the cares act, congress created the employee retention credit (“erc”), a fully refundable payroll tax credit, to provide aid to employers impacted by the covid-19 pandemic. As originally passed, the erc was available to eligible employers from march 13, 2020, to december 31, 2020, and was equal to 50% of up to $10,000 in qualified wages paid to an employee during the year—a credit opportunity of up to $5,000 per employee for the 2020 tax year.
Qualified wages for the erc include the portion of group health plan expenses (including both employer contributions and pre-tax employee contributions) that is allocable to otherwise qualifying wages. The determination of which wages are qualified wages is different depending on whether you are a large or small employer. For employers who averaged less than 100 full-time employees during 2019, qualified wages are those paid to any employee during a period in which your operations are fully or partially suspended by order of a governmental authority or during which you have a decline in gross receipts. For employers who 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.
7. What are "qualified health plan expenses"?
Determine potential aggregated group membership. Review qualification under suspension of operations. Analyze gross receipts to determine if there was a significant decline. Advise on full-time employee determination. Account for acquisitions or dispositions.
Devise a paycheck protection program (ppp)/erc-eligible expense optimization strategy. Quantify qualified wages and health plan expenses. Compute credit and advise on filing logistics.
50% of qualified wages (including qualified health plan expenses) paid to each employee $10,000 in maximum wages; therefore, maximum credit is $5,000 per employee.
As businesses of all sizes and in all industries became directly or indirectly affected by regulations and shutdowns caused by the covid-19 pandemic and the resulting economic downturn, it became clear that u. S. Companies needed significant financial assistance to remain open. The federal government authorized billions of dollars in aid specifically for businesses through the employee retention credit (erc) within the coronavirus aid, relief, and economic security act (cares act). A refundable employment tax credit for eligible employers based on qualified wages and health plan expenses, the erc allowed employers to use the funds to continue to pay existing employees and keep business running and staff working during the economic fallout caused by the coronavirus.
8. Is an Employer required to pay qualified wages to its employees under the CARES Act?
The employee retention credit (erc) was authorized under the cares act and encourages businesses to keep employees on the payroll. The 2020 erc program is a refundable tax credit of 50% of up to $10,000 in wages paid per employee from 3/12/20-12/31/20 by an eligible employer. That’s up to $5,000 per employee! the 2021 erc program has increased to 70% of up to $10,000 in wages paid per employee per quarter for the first 3 quarters of 2021. That’s up to $21,000 per employee!.
The ertc is a refundable payroll tax credit that was enacted as part of the cares act in march 2020. The credit from the cares act is equal to 50% of payroll-related costs over the eligible period up to a maximum credit of $5,000 per employee for 2020. Later legislation expanded the ertc through sept. 30, 2021 with several changes, including allowing companies that obtained ppp loans to benefit from the ertc. Additionally, for 2021, the definition of a small employer was expanded from 100 or fewer employees to 500 or fewer employees; the credit as a percentage of qualified wages increased from 50% to 70%, resulting in a credit up to a maximum of $7,000 per employee for each of three quarters in 2021.
The employee retention credit through the cares act is a fully refundable tax credit for employers who have closed or partially closed due to covid-19. This tax credit is 70 percent of qualified wages that employers pay their employees. The maximum amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021. Businesses that utilize this tax credit may also participate in the ppp. The credit has been extended to dec. 31, 2021. Additional guidelines here.
One provision of the coronavirus aid relief and economic security (“cares”) act provides eligible employers with a refundable payroll tax credit for certain wages paid. The 2020 credit is equal to 50 percent of up to $10,000 of qualified wages paid to employees after march 12, 2020, and before january 1, 2021. The 2021 credit is equal to 70 percent of up to $10,000 of qualified wages paid to employees after december 31, 2020 and on/before october 1, 2021. Eligible employers can get immediate access to the funds by reducing employment tax deposits they are otherwise required to make.
Under the cares act, eligible employers able to keep employees on their payroll can claim the employee retention credit: the employee retention credit allow employers take a credit in the amount of 50% of up to $10,000 of an employee’s qualifying wages ($5,000 is the maximum credit amount). This credit then reduces your employer social security tax liability. If your credit is more than your ss tax liability, you will receive a refund. Employee retention credit is a refundable tax credit equal to 50% of qualifying wages employers pay to their employees after march 12, 2020 and before january 1, 2021.
The employee retention credit (erc) introduced in the cares act has been one of the most significant sources of relief for employers struggling to recoup covid-19 losses. The benefit was made even better by the passing of the consolidated appropriations act, which extended the credit into 2021 and expanded eligibility to include qualified paycheck protection program (ppp) borrowers. Grassi’s tax advisors provide the guidance and certainty business owners need to determine their eligibility, calculate qualified wages and maximize this refundable payroll tax credit under both pieces of legislation. Services include: 2020 erc under the cares act (applicable to qualified wages paid after march 12, 2020 and before january 1, 2021).