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.

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