Employee Retention Tax Credit Available to Businesses
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (ACT), was signed into law on September 29, 2017 after Hurricane Harvey, Irma and Maria ravaged all or parts of Texas, Florida, Georgia, and Puerto Rico. This article focuses primarily on the area affected by Hurricane Irma, but applies to all 3 hurricanes. If you are affected by one of those storms, please check the dates and any other particulars that affect your area.
For businesses in the affected area the hurricanes were very detrimental to operations and the ability to make money, primarily generating cash. Without cash from operations, the are still bills to pay such as the rent, electric, inventory, etc. In addition, many employees cannot afford to not get paid for extended periods of time. Here in Brevard County, there were many businesses that were out of commission for just over a week. Some had to close early to allow their employees to prepare their homes for the storm or just to get out of town. Some were forced to stay closed after the storm because they did not have power.
Some businesses have the luxury (or misfortune depending on your perspective) to pay employees during the period they were closed. If so, then you are in luck due to a provision included in the ACT. An employer that pays wages/payroll/salary to an employee during the period in which they closed (or September 4, 2017, whichever is later), can claim a tax credit of 40% of the gross wages up to $6,000 per employee (i.e. up to $2,400 of eligible credit per employee). Historically this tax credit can be claimed on any type of return as a general business credit in which there is a tax due. See below for the definition of terms.
ELIGIBLE EMPLOYER.—The term “eligible employer” means any employer
(i) which conducted an active trade or business on August 23, 2017, in the Hurricane Harvey disaster zone, and
(ii) with respect to whom the trade or business described in clause (i) is inoperable on any day after August 23, 2017, and before January 1, 2018, as a result of damage sustained by reason of Hurricane Harvey.
ELIGIBLE EMPLOYEE.—The term “eligible employee” means with respect to an eligible employer an employee whose principal place of employment on August 23, 2017, with such eligible employer was in the Hurricane Harvey disaster zone.
QUALIFIED WAGES.—The term “qualified wages” means wages paid or incurred by an eligible employer with respect to an eligible employee on any day after September 4, 2017, and before January 1, 2018, which occurs during the period
(i) beginning on the date on which the eligible employer’s active trade or business first became inoperable at the principal place of employment of the employee immediately before Hurricane Irma, and
(ii) ending on the date on which such trade or business has resumed significant operations at such principal place of employment.
Such term shall include wages paid without regard to whether the employee performs no services, performs services at a different place of employment than such principal place of employment, or performs services at such principal place of employment before significant operations have resumed.
The credit cannot be taken on any wages paid to an employee where there is already a credit being taken such as the Work Opportunity Tax Credit.