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Disaster Tax Relief Enacted; Act Includes Employer Retention Credit

In the wake of the recent hurricanes to strike the United States and Puerto Rico, Congress has passed a package of tax relief measures, the Disaster Tax Relief and Airport and Airway Extension Act1 (the “Act”), to assist individuals and businesses that were adversely affected by the storms. The bill was signed into law on September 29, 2017.

Included in the Act is an Employee Retention Credit for eligible employers who continued to pay eligible employees during a period of inoperability as a result of damage sustained by reason of Hurricane Harvey, Hurricane Irma, or Hurricane Maria. 2 The amount of the credit is 40 percent of qualified wages on up to $6,000 in wages paid to each eligible employee during the period of inoperability (i.e., up to a $2,400 credit per eligible employee).

To be eligible, the employer must have conducted an active trade or business in the disaster area of each storm and must have been inoperable on any day after the effective date of the storm and before January 1, 2018 as a result of damage sustained by reason of the storm. The effective dates of each storm are as follows:

  • Hurricane Harvey – August 23, 2017
  • Hurricane Irma – September 4, 2017
  • Hurricane Maria – September 16, 2017

An “eligible employee” for purposes of the Employee Retention Credit is an employee whose principal place of employment on the date of the respective storm was in the hurricane disaster area.

“Qualified wages” are defined as wages paid by an eligible employer to an eligible employee on any day after the date of the respective storm and before January 1, 2018, which occurs during the following period:

  • Beginning on the date on which the trade or business first became inoperable as a result of the respective storm, and
  • Ending on the date on which such trade or business resumed significant operations at the impacted location.

Qualified wages include wages paid without regard to whether the employee performed no services, performed services at a different employer location, or performed services at the impacted location before significant operations resumed.

An employer cannot claim the Employee Retention Credit with respect to any employee for whom the employer is also claiming the Work Opportunity Tax Credit.

The Act does not define the terms “inoperable” or “resumed significant operations,” which is consistent with language from previous storm relief measures3. An employer therefore likely has some flexibility in determining how to define “inoperable” or “resumed significant operations” for its particular business, based on its own business metrics and how it was uniquely impacted by each storm. An employer should determine if it has locations in each storm’s declared disaster area4 and should examine the impact of the storm on the affected locations to determine if it may be eligible for the Employee Retention Credit.

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1 Disaster Tax Relief and Airport and Airway Extension Act of 2017, Pub. L. No. 115-63, H.R. 3823.

2 Disaster Tax Relief and Airport and Airway Extension Act of 2017, Pub. L. No. 115-63, H.R. 3823, Sections 501, 503.

3 See, e.g., I.R.C. Section 1400R.

4 See http://www.fema.gov/disasters.

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