October 25, 2017

Employee Retention Tax Credit

The summer of 2017 has been filled with Mother Nature’s wrath – wildfires and major hurricanes have devastated many areas of the United States, prompting our elected officials to pass tax laws that provide assistance to those taxpayers in the affected areas.  One such law, which was passed as part of The Disaster Tax Relief and Airport and Airway Extension Act of 2017 is the Hurricane Disaster Zone Employee Retention Credit (“The Credit”), signed into law on September 29, 2017.

The Credit provides a federal tax credit for qualified employers whose businesses were inoperable following a hurricane, yet they continued to pay their employees during this downtime.  The Credit is equal to 40% of the wages paid to an employee during the affected period, up to $6,000 in wages per employee; therefore, the maximum credit per employee is $2,400.

A qualified employer is defined as:

  • A business engaged in an active trade or business on the date the disaster occurred;
  • One who operated a business location within an area designated as a disaster area; and,
  • One whose business was inoperable following the disaster, but continued to pay employees.

It is important to note that the employer’s place of business need not have sustained damage as a result of the disaster to qualify for the credit.

For example – a professional services firm leases office space in a building, where the basement of the building was flooded.  As a result of the flooding, the building’s electrical and mechanical systems were heavily damaged, requiring the property management to close the building for an unforeseen period.  The firm did not sustain damage to its office space, but because of the closure, must work from a temporary location; however, they continue to pay their employees.  The firm can claim a tax credit.

Please contact Maddox Thomson & Associates if you have questions or need assistance in working through the details.