Employee Retention Credit: What Your CAA Needs to Know
Overview
On September 14, 2023, the IRS paused processing new Employee Retention Credit claims through the end of 2023, amid rising concerns about improper claims. IRS IR-2023-169. Employers may still file claims but should carefully review Employee Retention Credit guidelines or seek counsel before doing so. For those that have already filed claims, the IRS will continue processing these claims with slower processing times. The IRS will issue instructions on how to withdraw claims for which employers no longer believe they are eligible, as well as on how to participate in a settlement program for employers who have already received a credit that they now believe is in error.
The Employee Retention Credit (the “Credit”) was enacted on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the first major COVID-19 pandemic relief package. The purpose of the Credit was to help employers in both the private and nonprofit sectors maintain their workforces in the face of widespread, government-ordered shutdowns and losses in revenue.
This resource is intended to help federal grant-funded organizations, such as Community Action Agencies (CAAs) and state associations, understand the federal financial management rules that apply to Credits they might be eligible for and receive. CAAs should first determine if they are eligible for the Credit, as outlined further in the “Are you eligible for the credit?” section. If a CAA determines it is an eligible employer, the “How do you claim the credit?” section describes how to calculate the amount of the Credit the CAA may expect to receive, and how to apply for it. Even if a CAA determines it is eligible for the Credit, it should carefully weigh whether the CAA will be able to keep Credits it receives with respect to federally-funded employee wages or whether the Credits will be subject to the restrictions applicable to such federal funds. CAAs should understand and plan for these issues in advance of applying for the Credit, as outlined further in the “Should you claim the credit?” section.
The Credit is a fully refundable payroll tax credit that qualifying employers may claim based on a percentage of qualified wages paid to employees (including certain health plan expenses) during a shutdown or suspension of the employer’s operations, or significant loss of revenue. For 2020, the Credit equals 50% of qualified wages paid to an employee during each calendar quarter. For 2021, the Credit equals 70% of qualified wages each quarter.
The Credit is available for the period of March 13, 2020 through September 30, 2021 (extending through December 31, 2021 for certain employers). Eligible employers claiming the Credit have until April 15, 2024 to file claims for the 2020 tax filing year, and until April 15, 2025 to file claims for the 2021 tax filing year.
This resource is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Award Number 90ET0482-03. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.