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Changes to Employee Retention Credit and Health Plan Expenses

Natalie Tocco

May 11, 2020

The Treasury is acknowledging bi-partisan requests from congressional lawmakers to allow employers to claim the employee retention credit for health insurance paid to their furloughed employees.

The IRS addressed the change in its frequently asked questions (FAQs) regarding the CARES Act employee retention credit. The updated FAQs now clarify that eligible employers can treat health plan expenses as allocable to the applicable periods as qualified wages, even if employees are not working, and the employer does not pay employees any wages for the time they are not working. 

Prior guidance from IRS FAQs indicated that since wages were not being paid to furloughed employees, health plan expenses could not be allocable to qualified wages, and were not eligible for the employee retention credit.

The employee retention credit provides eligible employers a refundable payroll tax credit for 50% of qualified wages paid, including certain health plan costs, between March 13, 2020 and December 31, 2020. Qualified wages cannot exceed $10,000 per employee for all calendar quarters. Employers who received a paycheck protection loan from the SBA are not eligible for the employee retention credit.

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