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www.uslaw.org U S L A W
Key points of the New Payroll Tax Credit Available in 2021 for Public Colleges, Universities and Governmental Healthcare Entities Judith W. Boyette and Nancy Hilu
Effective January 1, 2021, certain governmental organizations are eligible for the employee retention and rehiring payroll tax credit originally established under Section 2301 of the CARES Act, which was previously only available to private-sector employers. The credit is available as an offset to payroll taxes based on eligible wages paid from January 1, 2021, through June 30, 2021. Q: WHICH GOVERNMENTAL EMPLOYERS ARE ELIGIBLE FOR THE NEW EXTENDED AND ENHANCED EMPLOYEE RETENTION PAYROLL TAX CREDITS? Public colleges, public universities, and governmental entities whose principal purpose is providing medical or hospital care are eligible. These governmental employers also must have either: (1) had operations fully or partially suspended during 2021 due to an order from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or (2) had a more than a 20 percent decline in gross receipts in any calendar quarter in 2021 compared to the same quarter in 2019.
Hanson Bridgett LLP
Q: HOW IS THE EMPLOYEE RETENTION PAYROLL TAX CREDIT CALCULATED? For employers that averaged 500 or fewer full-time employees during 2019, qualified wages are those paid to any employee during any period in the calendar quarter in which the business operations are fully or partially suspended due to a governmental order or any calendar quarter the business is experiencing a significant decline in gross receipts (more than 20 percent). For employers that averaged more than 500 full-time employees during 2019, qualified wages are those paid to employees for time that the employee is not providing services due to either (1) a full or partial suspension of the employer’s business operations by a governmental order, or (2) the business experiencing a significant decline in gross receipts (more than 20 percent). In both instances, certain amounts paid by an employer to provide or maintain a group health plan can be included in eligible wages, even if no other wages are paid to the employee.
Q: HOW CAN ELIGIBLE GOVERNMENTAL EMPLOYERS RECEIVE THE EMPLOYEE RETENTION PAYROLL TAX CREDIT? Presumably, the eligible governmental employer will use the same process the IRS has used for private-sector employers claiming this tax credit during 2020. The IRS issued Information Release 2020-62 early in 2020, indicating that employers could be immediately reimbursed for the credit by reducing their required deposits of payroll taxes. During 2020, employers claiming these types of payroll tax credits have been able to request an advance payment of the employee retention payroll tax credits. After reducing employment tax deposits to account for the credits, eligible employers could request the amount of the credit that exceeded the reduced deposits either by filing Form 7200 or waiting for a refund when claiming credits on their quarterly employment tax return. Under the year-end tax legislation, the IRS is directed to provide guidance on how employers whose number of average full-time employees in 2019 was not greater than 500 may receive advance payment of the employee retention payroll tax credit
