In conjunction with the CARES Act, the IRS has released form 7200, Advance Payment of Employer Credits Due to COVID-19, which allows eligible businesses to claim an advance of refundable tax credits used to help cover the cost of keeping employees on payroll, even if they’ve been furloughed or are working reduced hours.
Who is a Qualified Employer?
Two types of employers will qualify—those who fall within the Families First Coronavirus Response Act (FFCRA) guidelines and those who fall within the CARES Act guidelines.
Under the FFCRA, eligible employers are businesses and tax –exempt organizations that have fewer than 500 employees and are required to pay sick and family leave wages. Under the CARES Act, employers are eligible if their operations were fully or partially suspended due to COVID-19 or if gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019.
Important: an employer is not eligible to receive the tax credit if they’ve already taken out an SBA Loan!
How Much Is the Credit Worth and How Long is it Available?
An employer would receive a 50% credit for the first $10,000 of wages/benefits paid per employee. This would be a maximum credit of $5,000 per employee.
For businesses that have fully or partially closed, the credit is available until the business reopens. If a business qualifies because their revenues have dropped by more than 50%, the credit is available until the first calendar quarter after revenues have recovered to at least 80% of the prior year amounts.
How is the Credit Claimed?
Using the information contained on the quarterly payroll tax return (941, 943, 944), the employer (or their designated representative) will complete IRS Form 7200. Employers are allowed to hold onto payroll taxes that they would normally have to deposit with the IRS, in anticipation of the credit. That way, a business owner doesn’t have to make deposits if they expect the credit will cover all of the taxes they would normally pay.