The Consolidated Appropriations Act, 2021 (CAA) included a provision entitled Disaster Tax Relief. Section 303 of this provision gets into the details of an employee retention credit for employers affected by qualified disasters.
It appears that this employee retention credit will be claimed on Form 5884-A that will be filed with an employer’s annual income tax return. However, this form and its instructions have not been updated since March 2020 (prior to the passage of the CAA). When filing information becomes available, we will provide an update.
A “qualified disaster area” is an area where a major disaster was declared by a federal government agency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act between January 1, 2020, and February 25, 2021. This does not include any area declared a major disaster with respect to COVID-19.
The following counties in Iowa were designated as “qualified disaster areas” as a result of the August 10, 2020 derecho:
Benton, Boone, Cedar, Clinton, Dallas, Jasper, Johnson, Jones, Linn, Marshall, Muscatine, Polk, Poweshiek, Scott, Story, and Tama Counties.
The employee retention credit is for employers who operated in a qualified disaster zone and became inoperable on account of the disaster (qualified employer) and continued to pay employees whose principal place of business was in the designated disaster zone (qualified employees). The amount of credit is based on qualified wages paid by an eligible employer to an eligible employee. The employee retention credit is 40% of qualifying wages on up to $6,000 of wages per each qualifying employee (maximum credit $2,400 per qualifying employee).
“Qualified wages” include wages paid or incurred to an employee working at the time of the disaster in the trade or business impacted by the disaster where the employee’s principal place of employment became inoperable. The incident period begins at any time on or after the business became inoperable and ending on the earlier of (1) the date the business returned to significant operations, or (2) 150 days after the disaster.
The “qualified wages” include wages paid without regard to whether the employee performs any services, performs services at a different location from their principal place of employment, or performs services at their principal place of employment before significant operations have resumed. Employers can claim qualified wages regardless of whether they were reimbursed by insurance. Qualified wages under the disaster provision cannot also be considered wages that would qualify for the employee retention credit under Section 2301 of the CARES Act. The disaster provision also contains a similar election to that of the enhanced employee retention credit whereby there cannot be an overlap with claiming wages for PPP loan forgiveness and the enhanced employee retention credit.
A cooperative described in Sec. 1381(a) must allocate to its patrons the credit in excess of its tax liability limit. Therefore, in order to figure the unused amount of the credit allocated to patrons, the cooperative must first figure its tax liability.
To learn more about the recent updates to the ERC as included in the CAA, we encourage you to read this blog post. As more legislation updates and IRS guidance continues to unfold, BerganKDV will monitor the situation. If you have any questions regarding the new law and how it may impact you, please contact your trusted advisor or start here.