By Andrew Gradman, Tax Attorney
Trusted Advisor at AB FinWright LLP ( and Founder at Gradman Tax (

Accepted for publication in the CEB Business Law Reporter; reprinted with permission. Updated through April 24, 2020. The published version will reflect new developments and may contain proofreading and other changes. 

This article is the third of a four-part series which describes three tax subsidies which are meant to help keep employees employed during the coronavirus pandemic:

  1. Long-term deferral of the employer’s obligation to pay certain payroll taxes;
  2. A limited daily stipend for a limited number of days, to cover part of the newly-mandated paid sick or family leave (with a similar subsidy for the self-employed); and
  3. Up to $5,000 in dollar-for-dollar matching pay, for economically impacted employers.

These provisions appear in the Families First Coronavirus Response (“Families First”) Act (Pub Law 116-127, 134 Stat 178) and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (Pub Law 116-136 134 Stat 281).

3. Employer Retention Credit 

By contrast, this credit is about the employer being sick (so to speak). Think of this as a matching wage program for employees: The government will match the wages you pay, dollar for dollar, in order to help the sick employer not fire its employees.

It has these limits:

  1. It is not available for the self-employed.
  2. Not all employers are eligible. When I say the employer must be “sick,” that means either of two things.
    • Option 1: The employer had a significant decline in income compared to the previous year. (Literally: a decline in gross receipts of over 50%, compared to the corresponding quarter in 2019.)
    • Option 2: The employer’s business was suspended due to coronavirus. (Literally: “the operation of the … business … is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to … COVID–19.”)
  1. If the employer has more than 100 employees, he can only count wages paid to furloughed employees.
  1. Lifetime cap: The credit is available for up to $5,000 per employee. If you stop paying when the matching stops, this has the effect of keeping the employee around the poverty line: You pay $5,000; the government matches $5,000; and the government sends the person an economic impact payment check for $1,200. This totals $11,200, which is $1,560 shy of the 2020 federal poverty guideline of $12,760 for a single person. If we assume that the person earned wages in the the first quarter of 2020, he should be above the poverty line.
  1. Start and Stop dates: The credit only applies to days between March 13, 2020 and December 31, 2020.
  1. If you are earning credits on wages paid for sick or family leave as described above, those wages don’t also get these matched payments.
  1. An employer is not eligible for this credit if it receives a PPP loan (regardless of when, and whether, that loan is eventually forgiving; this is a more exacting requirement than for the deferral of taxes, which is available until the loan is forgiven).

See our subsequent for article part (4).