Disaster Assistance: Federal Tax Credits for Employee Retention

Congress recently enacted tax relief measures for businesses affected by Hurricanes Harvey, Irma and Maria. One of these measures, the Disaster Tax Relief and Airport and Airway Extension Act of 2017, provides a new Employee Retention Tax Credit of 40% of up to $6,000 in qualified wages per employee. The maximum credit per employee is $2,400 ($6,000 x 40%) for wages paid by a disaster-affected employer to each employee whose principal place of employment was in a hurricane disaster zone.

For purposes of this credit, the effective dates and periods of eligibility of each storm are as follows:

• Hurricane Harvey (August 23, 2017 – December 31, 2017)
• Hurricane Irma (September 4, 2017 – December 31, 2017)
• Hurricane Maria (September 16, 2017 – December 31, 2017)

Does My Business Qualify for the Credit?

Eligible employers must have conducted an active trade or business in the disaster area of each storm and such business must have been rendered inoperable as a result of the damage sustained by one of these three hurricanes. The period of inoperability must have occurred either on or following the effective date of the storm but before January 1, 2018. During the period of inoperability, the employer must have continued to pay qualified wages to eligible employees. A controlled group of corporations is considered a single employer for purposes of this tax credit, and businesses cannot also claim the work opportunity tax credit for the same wages for which the new credit is claimed.

For purposes of the Employee Retention Tax Credit, an eligible employee is an employee whose principal place of employment was in the hurricane disaster area on the date of the respective storm. Qualified wages are wages paid by an eligible employer to an eligible employee anytime during the period of inoperability resulting from the hurricane damage. This period of inoperability must begin on any day after the date of the respective storm and end on the date when the trade or business resumed significant operations in the disaster area, but no later than January 1, 2018. Qualified wages do not require analysis of whether the employee performed no services, performed services at a different employer location, or performed services at the disaster area location before significant operations resumed.

How Can Eligible Businesses Claim the Credit?

The Employee Retention Tax Credit is treated as a general business credit under Sec. 38 of the Internal Revenue Code. It is reported on Form 3800, General Business Credit, and any unused portion is permitted a one-year carryback and 20-year carryforward.

How Can Andersen Help?

Andersen has helped clients obtain millions of dollars in tax credits since our firm’s inception. Our experienced Credits & Incentives (C&I) specialists help companies navigate through the analysis of qualified wages, employee eligibility, and determination of the period of inoperability.

Our C&I specialists are a part of our highly skilled state and local tax team which includes professionals with law, accounting, public sector and business management backgrounds. This complement of professionals will help align your business goals and tax benefits. We are not just a credit and incentive negotiator – we help taxpayers support, report and defend tax credits and incentives.