Proposed JOBS Credit Act Would Significantly Expand CARES Act Employee Retention Tax Credits

By Martha Perkins posted 05-15-2020 12:00 PM

  

By Brian J. Tiemann, Sarah L. Engle, Andrew C. Liazos, and David Fuller of McDermott Will & Emery
Published May 12, 2020


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 McDermott Will & Emery's 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 MWE's 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 the purposes of determining qualified wages is an employer who averages more than 100 full-time employees in 2019.

A large employer for the purposes of determining qualified wages is an employer who averages more than 1,500 full-time employees in 2019 and had more than $41.5 million in gross receipts in 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 from 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.




Brian J. TiemannBrian J. Tiemann is a Partner in the Chicago office of McDermott Will & Emery. He counsels public and private companies on a broad range of employee benefit matters, including matters related to pension plans, 401(k) plans and executive and incentive compensation. He can be reached at btiemann@mwe.com or 312.984.3268.

 






Sarah L. EngleSarah L. Engle is a Partner in the Chicago office of McDermott Will & Emery. She counsels clients regarding a variety of issues, including the design, drafting and operation of tax-qualified pension and profit sharing plans, health and welfare arrangements, and deferred compensation plans. She can be reached at single@mwe.com or 312.984.2024.

 






Andrew C. LiazosAndrew C. Liazos is a Partner and heads the McDermott Will & Emery Executive Compensation Group and the Boston Employee Benefits Practice. He focuses his practice on compensation and benefit matters, including related securities, M&A, IPO, private equity, international and litigation matters. He can be reached at aliazos@mwe.com or 617.535.4038.

 






David FullerDavid Fuller is Counsel in the Washington, DC office of McDermott Will & Emery. He 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), Section 139 qualified disaster relief payments and the contingent workforce (outsourcing, PEOs, and employee leasing). He can be reached at dfuller@mwe.com or 202.756.8516.



 

 

 

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