An important employment tax credit provided by the CARES Act is the Employee Retention Credit (ERC). This credit is payroll tax credit equal to 50% of up to $10,000 of qualified wages per employee paid from March 13, 2020 through December 31, 2020.
With this update, we want to provide an important reminder regarding eligibility for the credit. Employers are eligible for the credit for any quarter in which they have either had to fully or partially suspend operation of business because of governmental orders due to COVID-19, or if they have had more than a 50% decline in gross receipts as compared to the same quarter a year ago. As we move into Q3, (beginning July 1), it is important to remember that eligibility is determined quarterly. So, just because your business may have qualified for the ERC in the second quarter of this year, does not necessarily mean that you will qualify for it in Q3. And, of course the reverse is true too. So, if your business did not qualify for the ERC in Q2 but in Q3 your revenue is down more than 50% compared to Q3 of 2019, you can take advantage of this important relief provided to employers.
Employer Payroll Tax deferral ease of restriction
When the Paycheck Protection Program (PPP) was originally rolled out, a restriction was articulated in the legislation that indicated that should a PPP loan be forgiven, employers would not (no longer? No one was quite sure) be able to use the deferral of employer payroll tax provisions provided elsewhere in the CARES Act (Employer Social Security Deferment).
That has now changed. Per the Paycheck Protection Program Flexibility Act of 2020, Sec. 4 Delay of Payment of Employer Payroll Taxes (a) In General – Section 2302(a) of the CARES Act is amended by striking paragraph (3):
SEC. 2302. DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES. (3) EXCEPTION.— This subsection shall not apply to any taxpayer if such taxpayer has had indebtedness forgiven under section 1106 of this 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 this Act, or indebtedness forgiven under section 1109 of this Act.
This means employers who have received and are seeking forgiveness for a PPP loan may now be eligible to defer employer Social Security tax through December 31, 2020. Good news for those many businesses looking for forgiveness on the PPP loan and still would like to defer their employer-side payroll taxes for the year.
As always, please consult your legal and financial advisors to determine eligibility for your organization. If you are a PayNorthwest client, and would like to request deferral of your employer Social Security tax under the CARES Act, please complete this form.