The IRS has provided guidance for taxpayers reporting the employee retention credit for certain employers subject to closure due to the COVID-19 crisis, including that the credit with respect to wages paid in March should be reported on the 2nd quarter 2020 employment tax return.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136) provides a refundable payroll tax credit (employee retention credit) for 50% of wages paid by Eligible Employers to certain employees during the COVID-19 crisis. (Act Sec. 2301(a))
The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. (CARES Act Sec. 2301(c)(2))
The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. (CARES Act Sec. 2301(c)(3)(C); CARES Act Sec. 2301(b)(1))
The refundable tax credit is equal to 50% of qualified wages paid to employees after March 12, 2020 and before January 1, 2021.
Reporting the employee retention credit
Eligible Employers who paid qualified wages between March 13, 2020 and March 31, 2020, inclusive, will report 50% of those wages together with 50% of any qualified wages paid during April, May, and June 2020 on their 2nd quarter Form 941, Employers QUARTERLY Federal Tax Return, to claim the employee retention credit. Employers should not include the credit on their 1st quarter Form 941.
This guidance also applies for Form 941-SS, Employers QUARTERLY Federal Tax Return for American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Island, and Form 941-PR, Employers QUARTERLY Federal Tax Return for Puerto Rico.