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Employee Credit Guidance Arrives as Big Businesses Rethink Loans

Posted on Apr. 30, 2020

The IRS provided several pieces of guidance on the refundable employment tax credit that is increasingly attractive for large businesses reconsidering participation in the forgivable loan program.

In several FAQs released April 29, the IRS described additional details on the employee retention credit program, which had so far been the less popular option for businesses that were also considering Paycheck Protection Program (PPP) loans.

The IRS at the end of March released an FAQ on the general aspects of the credit, but that guidance has been vastly updated with several FAQs that go into depth on various aspects of the program. The guidance now includes insights into determining when a business is considered to have a significant decline in gross receipts, what counts as qualified wages, and how the credit interacts with other credit and relief provisions.

Both the employee retention credit and PPP loan programs, created by the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), are aimed at encouraging businesses to keep paying workers during the economic downturn. The retention credit was initially deemed unattractive for a lot of businesses because taking advantage of it meant giving up the chance to receive a forgivable, tax-free PPP loan.

But now big businesses are largely shying away from PPP loans after it was revealed that large public companies that didn't appear to need them had received millions anyway. That prompted public outcry and a warning from Treasury that some businesses should consider returning the loan proceeds, which some have already agreed to do.

The employee retention credit is equal to 50 percent of qualified wages paid in a calendar quarter by eligible employers from March 12, 2020, to January 1, 2021. The credit is fully refundable, and the maximum amount of wages applicable for each employee for all calendar quarters is $10,000. That means the maximum employer credit is $5,000 per employee.

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