More Work Must Be Done on Tax Credit

First, it is important to note that unless the language of the new law is changes, no one qualifies for the tax credit. As it was enacted, an employee has to work 90-consecutive days. Even if that is repaired before Jan. 1, 2020, the following employers are not considered eligible for the tax credit:

  1. Any employer with more than 50 full-time equivalent employees in their entire operation is not eligible.Many employers including call and IT centers, a restaurant, grocery store, movie theater or other entertainment option, dry cleaner, etc., can easily have more than 50 at a single location. They would not be eligible for the tax credit.
  2. Any employer who has more than one franchised store or files taxes as part of a unitary group is not eligible.This demonstrates a fundamental lack of understanding between a franchisee and a franchisor.
  3. Any employer who pays more than the minimum wage at the time is not eligible.For example, if an employee is currently paid $9.50 per hour, and the wage increases Jan. 1, 2020, from $8.25 to $9.25, that employer is not eligible.
  4. Any employer whose average wage is less in the current quarter vs the quarter the year before is not eligible.If an employer has to lay people off, close a store, or reduce hours, he/she would not be eligible for the credit.
  5. An employer cannot claim credit for more employees than the number of employees making less than the minimum or reduced wage for the current calendar year during the last reporting period of the preceding year.If an employer employees 100 people and 10 were making less than the minimum or reduced wage (i.e., teens) during the last reporting period of the preceding year (October – December), then the employer can only claim the credit for 10 employees.
  6. The effort to really help small employers by extending the credit an extra two years helps almost no one. IDOR is claiming 48% of all employers have fewer than five employees. In fact, that includes employers who work for themselves and are the only employee. They account for nearly 80% of all employers with fewer than five employees.

If an employer somehow manages to escape all of those disqualifications, then the following credit applies to employers with 50 or fewer employees:

  • Credit against withholding payments beginning on or after Jan. 1, 2020, and ending on or before Dec. 31, 2027.
  • The credit cannot exceed employer’s payroll withholding for that period.
  • Maximum credit allowed for reporting periods beginning on or after and ending on or before the following dates:
      • Jan. 1, 2020 – Dec. 31, 2020 = 25%
      • Jan. 1, 2021 – Dec. 31, 2021 = 21%
      • Jan. 1, 2022 – Dec. 31, 2022 = 17%
      • Jan. 1, 2023 – Dec. 31, 2023 = 13%
      • Jan. 1, 2024 – Dec. 31, 2024 = 9 %
      • Jan. 1, 2025 – Dec. 31, 2025 = 5%
  • For employers with more than 5 employees, these credits can continue to be claimed for reporting periods beginning on or after Jan. 1, 2026, and ending on or before Dec. 31, 2026.
  • For employers with fewer than 5 employees, these credits can continue to be claimed for reporting periods beginning or after Jan. 1, 2026, and ending on or before Dec. 31, 2027.
  • Tip credit remains at 60%/40%; training wage remains at $0.50 per hour lower than starting wage for first 90-days of employment; and penalties are increased substantially for wage-theft.

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