IRS Reverses Guidance on Employee Retention Tax Credit

Codes and Standards
Published

In response to concerns raised by a bipartisan group of lawmakers, the IRS has reversed guidance to allow employer-paid health insurance costs to be eligible for the employee retention tax credit, even if the employer has furloughed workers and is not otherwise paying wages.

The IRS has updated its FAQ to state that “[e]ligible employers may treat health plan expenses allocable to the applicable periods as qualified wages even if the employees are not working and the eligible employers does not pay the employees any wages for the time they are not working.”

The tax credit is designed to support eligible employers whose businesses are disrupted due to COVID-19 and was included in the CARES Act that was recently enacted into law.

In general, eligible employers are allowed a credit equal to 50% of up to $10,000 in qualified wages with respect to each employee.

To claim this credit, the business must experience one of these two events:

  • The operation of the trade or business is fully or partially suspended during the appropriate calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19; or
  • The trade or business experiences a significant decline in gross receipts, with a 50% decline in gross receipts when compared to the same quarter in the prior year. Businesses remain eligible until their gross receipts recover to 80% when compared to the same quarter in the previous year.

However, employers receiving a loan under the Payroll Protection Program are not eligible for the employee retention credit.

For more information, contact J.P. Delmore at 1-800-368-5242 x8412.

NAHB is providing this information for general information only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. Before making any decision or taking any action on this information, you should consult a qualified professional adviser to whom you have provided all of the facts applicable to your particular situation or question.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Material Costs

Aug 29, 2025

NAHB's Monthly Update Features Canadian Lumber Duties Talking Points

The update provides the latest messaging framework to help members articulate housing priorities and latest news related to the Canadian lumber imports and builder sentiment.

Advocacy | US Economy

Aug 28, 2025

Podcast: Congressional Priorities and the Trump Economy Heading into Fall

On the latest episode of NAHB podcast Housing Developments, NAHB CEO Jim Tobin and COO Paul Lopez discuss how the rest of the year looks as Congress gets ready to return to Washington next week.

View all

Latest Economic News

Economics

Aug 29, 2025

Multifamily Absorption Rises in the Second Quarter

The percentage of new apartment units that were absorbed within three months after completion rose in the second quarter, according to the Census Bureau’s latest release of the Survey of Market Absorption of New Multifamily Units (SOMA).

Economics

Aug 28, 2025

Mortgage Rates Move Lower, Hitting 10-Month Low

Average mortgage rates in August continued their steady decline and are now at their lowest rate since last November.

Economics

Aug 27, 2025

Wood-Framed Home Share Increased in 2024

Wood framing continues to dominate the U.S. single-family home construction market, according to NAHB analysis of 2024 Census Bureau data.