Many lives and businesses were disrupted this fall with several significant hurricanes that tore through the Southeast. In response, the IRS is giving those in areas impacted by the storms extra time to file tax returns.
But employers are also given another hand up with a new federal tax credit for eligible employees who were employed at businesses affected by Hurricanes Harvey, Irma and Maria.
According to the tax provisions in the 2017 Disaster Tax Relief bill, an employee retention credit is provided to employers impacted by the three hurricanes.
An eligible employer is one who was operating a business in the disaster zone at the time the hurricanes struck. Therefore, employers in the 47 counties in Texas declared federal disaster areas as of Aug. 23, 2017, would be eligible for the employee retention credit as a result of Hurricane Harvey. Employers in Georgia and Florida, as well as several cities in Puerto Rico and the U.S. Virgin Islands are offered the credit for employees working as of Sept. 4, as a result of Hurricane Irma. The credit is available for employers in Puerto Rico and the Virgin Islands as of Sept. 16 for Hurricane Maria relief.
An eligible employee is one whose principal place of employment was the disaster zones of Hurricanes Harvey, Irma and Maria.
The one-time credit equals 40 percent of up to $6,000 of “qualified wages” for each eligible employee for the tax year.
In other words, the maximum credit per employee is $2,400. Take, for example, an employer with two eligible employees. One earned $4,000 and the other earned $7,000. The employer could take a 40 percent credit on the $4,000 wages, for a credit of $1,600, and the 40 percent credit on $6,000 of the $7,000 earned by the second employee. The total credit to the employer would be $4,000.
The qualified wages are those paid by an eligible employer to an eligible employee on any day after the specified dates above and before Jan. 1, 2018. Specifically, the credit period begins on the date that the employer’s business first became inoperable at the principal place of the employee immediately before the respective hurricane and ending on the date at which the business resumed significant operations.
One important note: An employee can only be taken into account for this credit for one incident. Consequently, an employee eligible for the credit as a result of Hurricane Harvey cannot also be eligible for a credit as a result of Hurricane Irma.
We recommend contacting your tax credit vendor to help you maximize the benefits of this credit program for your business. If you are not currently working with a tax credit vendor, please contact us if you would like the names of some vendors to assist you in this area.
As always, please do not hesitate to contact us if we can help you in any way.