Recently, President Trump passed the “Disaster Tax Relief and Airport and Airway Extension act of 2017” into law on September 29, 2017. The newly enacted Act provides a temporary tax relief to the victims of recently occurred Hurricanes Harvey, Irma and Maria. In addition, Businesses that qualify for relief may claim a new “employee retention tax credit” of up to $2,400 for qualified wages paid to eligible employees.
Highlights of the Relief
Relief for individuals includes among other things, tax favored withdrawals from retirement plans, loosened restrictions for claiming personal casual losses and option of using current or prior year’s income for purposes of claiming the earned income and child tax credits.
Eased access to Retirement Funds
- The maximum amount that a participant or a beneficiary can borrow from a qualified employer plan under Code Sec. 72(p)(2)(A) increases from $50,000 (under current law) to $100,000 (under new law)
- Penalty relief is provided for qualified hurricane distributions from the 10% early retirement plan withdrawals. This provision applies to individuals residing within the disaster areas.
- The Act removes the ‘one half of present value’ limitation (exists in current law)
- The Act allows for a longer repayment term by delaying the due date of the first repayment by one year (new law), previously the loan was required to be repaid in five years (current law)
Employee Retention Tax Credit for Employers
The Act provides a new “employee retention credit” for “eligible employers” affected by Hurricanes Harvey, Irma and Maria. Eligible employer is an employer that conducted an active trade/business within the disaster zone during the specified date periods and rendered inoperable because of the damage sustained by the hurricane. Therefore, a credit is applied based on the Code Sec. 28(b), which equals to the 40% up to $6,000 of “qualified wages” in respect to each “eligible employee” of such employer per year. In addition, qualified wages are wages paid or incurred on any day after the applicable date and before January 1, 2018, which occurs during the period:
1. Beginning on the date on which the trade or business became inoperable at the principal place of employment of the employee or,
2. Ending on the date in which such trade or business resumed significant operations.
More importantly, an employee can only be accounted once for the purposes of Employee retention Tax Credit. For example, if an employee is an eligible employee of an employer for Hurricane Irma, therefore the same employee cannot be accounted for Hurricane Harvey or Hurricane Maria. Please note, the Work opportunity Tax Credit (WOTC) cannot be claimed on the same set of qualified wages used for Employee Retention Tax Credit. However, WOTC can be claimed on the same individual.
The Employee Retention Credit will be administered in the same manner as Work Opportunity Tax Credits and is filed as a credit against a qualifying employers’ income tax. The credit is not to be taken against employment tax liabilities. For information on how to use Paylocity reports and other tools to determine eligibility, ask your Account Manager.
For more information, please refer to the following link: https://www.congress.gov/115/bills/hr3823/BILLS-115hr3823ih.pdf.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.