July 13, 2020

Volume X, Number 195

July 13, 2020

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July 10, 2020

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Proposed Jobs Credit Act Would Significantly Expand Cares Act Employee Retention Tax Credits

A bill titled Jumpstarting Our Businesses’ Success Credit Act of 2020, which would make significant changes to the employee retention tax credits available under the CARES Act, is currently under consideration in the US House of Representatives. In this article, we outline the proposed changes, which are generally designed to increase the availability, scope and amount of the credits.

IN DEPTH


The US House of Representatives is currently considering a bill titled Jumpstarting Our Businesses’ Success Credit Act of 2020 (the JOBS Credit Act), which would make significant changes to the employee retention tax credits available under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The changes are generally designed to increase the availability, scope and amount of the credits. If the JOBS Credit Act is enacted, the changes will be effective retroactive to March 27, 2020, when the CARES Act was enacted.

For general information on the CARES Act employee retention credits, please see our On the Subject here.

Changes under the Proposed JOBS Credit Act

The proposed JOBS Credit Act would make the following changes to the CARES Act employee retention credits:

  • Amount of Credits. The credits currently equal 50% of up to $10,000 in qualified wages that an eligible employer pays in a calendar quarter. The JOBS Credit Act would increase the amount of the credits to 80% of up to $15,000 in qualified wages per calendar quarter with a new annual cap of $45,000 in qualified wages. The maximum credit for wages paid to any employee would therefore increase from $5,000 under the CARES Act to $36,000 under the increased limits of the JOBS Credit Act.

  • Large Employers. What constitutes qualified wages for which the employee retention credits can be claimed depends on the size of the employer’s average full-time workforce in 2019, with more stringent criteria for larger businesses. The JOBS Credit Act would increase the threshold for determining a large employer from 100 employees under the CARES Act to employers with more than 1,500 employees and more than $41.5 million in gross receipts in 2019. This change would allow more employers to be considered small employers and claim the credits on all wages paid to employees, even if the employees are providing services during the period for which the credits are claimed.

  • Governmental Employers’ Eligibility. The proposed JOBS Credit Act would make the credits available to state or Indian tribal governments and any agency, instrumentality or political subdivision thereof that were ineligible for the credits under the CARES Act. This would include hospitals that are government instrumentalities or affiliated with state universities.

  • Gross Receipts Test. An employer’s initial eligibility for the credits is triggered if either of two COVID-19 economic hardships arise within a calendar quarter for 2020. The second of these economic hardships is a significant decline in gross receipts, which occurs during a calendar quarter when the employer’s gross receipts are less than 50% of the employer’s gross receipts for the same calendar quarter in 2019. The JOBS Credit Act increases the threshold to 80% of gross receipts, making it easier for employers to satisfy this requirement.

  • Health Plan Expenses. Qualified wages also include qualified health plan expenses as are properly allocable to an employee’s wages. After initially concluding in FAQs that the credits were not available for health plan expenses if an employer was not paying other wages to an employee, the IRS reversed its position and concluded that an employer could claim the credits for health plan expenses paid for furloughed employees who are not receiving other compensation from the employer. The JOBS Credit Act reaffirms this and allows the credits to be claimed on health plan expenses for furloughed employees.

Improved Coordination with Paycheck Protection Program (PPP)

The PPP under the CARES Act allows eligible employers to borrow up to $10 million at a fixed interest rate of 1% for a two-year term if the loan is used to pay certain business expenses, including payroll and employee benefits. PPP loans are forgivable if they are used to retain and pay employees, rent, utilities and interest on mortgage obligations during the eight-week period following loan origination. For general information on the PPP, please see our On the Subject here.

Employers that received a loan under the PPP are ineligible for the employee retention tax credits under the CARES Act. The JOBS Credit Act would allow an employer that properly received a PPP loan to claim the credits on qualifying wages to the extent that the employer’s PPP loan could not be forgiven due to the employer not incurring expenses qualifying for loan forgiveness during an eight-week period after the origination date of the loan.

Comparing the CARES Act and the JOBS Credit Act

  CARES Act JOBS Credit Act
Amount of Credits The credits equal 50% of up to $10,000 in qualified wages that an eligible employer pays in a calendar quarter. The maximum credit is $5,000. The credits equal 80% of up to $15,000 in qualified wages that an eligible employer pays per calendar quarter, subject to an annual cap of $45,000 in qualified wages. The maximum credit is $36,000.
Large Employers A large employer for purposes of determining qualified wages is an employer who averaged more than 100 full-time employees in 2019. A large employer for purposes of determining qualified wages is an employer who averaged more than 1,500 full-time employees in 2019 and had more than $41.5 million in gross receipts for 2019.
Governmental  Employers’ Eligibility Governmental employers are not eligible for the credits. A state government, Indian tribal government or any agency, instrumentality or political subdivision thereof may be eligible for the credits.
Gross Receipts Test An employer is eligible for the credits if the employer’s gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019. An employer is eligible for the credits if the employer’s gross receipts are less than 80% of gross receipts for the same calendar quarter in 2019.
Health Plan Expenses Qualified wages include qualified health plan expenses that are properly allocable to an employee’s wages. Qualified wages include qualified health plan expenses. The JOBS Credit Act eliminates the requirement under the CARES Act that the health plan expenses be allocable to an employee’s wages.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 133

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About this Author

Brian J. Tiemann, Labor Attorney, McDermott Law Firm
Partner

Brian J. Tiemann is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.   Brian focuses his practice on a variety of employee benefits matters related to pension plans, 401(k) plans, employee stock ownership plans (ESOPs), cafeteria and welfare plans, executive compensation and the implementation of benefit programs for domestic partners of employees.  He is a member of the Firm’s ESOP Affinity Group and has worked with clients to structure and maintain the qualified status of their ESOPs with the Internal Revenue...

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Associate

Sarah Engle* is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. She focuses her practice on employee benefits matters.

Sarah counsels clients regarding a variety of employee benefits matters, including the design, drafting and operation of tax-qualified pension and profit sharing plans, health and welfare arrangements, and deferred compensation plans.

She is experienced advising clients on employee benefits design, implementation and transition matters arising in connection with corporate mergers and acquisitions, and advises companies on regulatory compliance with the Internal Revenue Code, ERISA, HIPAA, COBRA, PPACA, and related state and federal laws affecting employee benefit plans.

Sarah also has particular experience helping clients address compliance issues related to the administration of their employee benefit plans and has represented clients in matters before the Internal Revenue Service (IRS), Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC).

Sarah received her J.D. in 2010 from University of Pittsburgh School of Law, where she was articles editor for the University of Pittsburgh Law Review. She earned her B.S. in 2007 from Indiana State University.

Sarah is admitted to practice in Pennsylvania.

*Not admitted to practice in Illinois. Supervised by principals of the Firm who are admitted to the Illinois bar.

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Andrew C. Liazos Executive Compensation Attorney McDermott Will Boston
Partner

Andrew C. Liazos is a partner in the law firm of McDermott Will & Emery LLP based in the Firm’s Boston office. Andrew heads the Firm's Executive Compensation Group and the Boston Employee Benefits Practice.

Andrew regularly represents Fortune 500 companies, public companies, large closely held businesses and compensation committees on all aspects of executive compensation, ERISA fiduciary matters, employee benefits in business transactions and bankruptcy, and employee stock ownership plans. He also counsels executives in employment agreement and joint...

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David Fuller Tax Litigation Lawyer DC
Counsel

David Fuller focuses his practice on matters involving employee fringe benefits, independent contractor/employee classification, payroll taxes, information reporting, corporate aircraft, supplemental unemployment compensation benefits (SUB pay), and the contingent workforce (outsourcing, PEOs, and employee leasing). His unique practice includes tax litigation on a wide range of significant FICA and tax refund matters.

David has experience in employment tax, employee-independent contractor, and fringe benefits planning strategies, as well as...

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