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Federal Tax Credits Available for Employers Impacted by Hurricanes and California Wildfires

Terence Avella, J.D., LL.M. and Evan Fox, J.D., LL.M. 02.22.2018 | Client Alert

Certain employers rendered inoperable by Hurricanes Harvey, Irma, or Maria, and located in a federally-declared disaster zone, may be eligible to claim a Hurricane Disaster Zone Employee Retention Credit (ERC). The credit is equal to the lesser of $2,400 or 40% of the wages paid to each affected employee during the applicable relief period. Additionally, this credit was further expanded to provide relief measures to individuals and businesses affected by the California Wildfires.

Requirements

To be eligible for the ERC, the employer must have been actively conducting a trade or business on the hurricane impact date (August 23, 2017 for Harvey; September 4, 2017 for Irma; and September 16, 2017 for Maria) within the designated disaster zone (as defined by FEMA) that became inoperable during the applicable relief period as a result of the hurricane damage. A business will be deemed inoperable if it was physically inaccessible to employees, raw materials, utilities, or customers during the relief period.

The ERC calculation is based on qualified wages paid by an eligible employer to an eligible employee during the applicable relief period of employer inoperability. An “eligible employee” is an employee whose principal place of employment on the applicable hurricane date was in a designated disaster zone. “Qualified wages” are wages paid to an eligible employee during the relief period in which the business first became inoperable until it resumed significant operations. Qualified wages include those wages paid without regard to whether the employee performs any services, performs services at a different location from his or her principal place of employment, or performs services at the principal place of employment before significant operations have resumed.

Relief Periods

The applicable wage computation relief periods for inoperable employers are as follows:

  • Hurricane Harvey Disaster Zone: August 23, 2017 – December 31, 2017;
  • Hurricane Irma Disaster Zone: September 4, 2017 – December 31, 2017;
  • Hurricane Maria Disaster Zone: September 16, 2017 – December 31, 2017; and
  • California Wildfires: October 9, 2017 – December 31, 2017.

The ERC amount is equal to 40% of the qualified wages paid to each eligible employee, up to a maximum of $6,000 ($2,400 per eligible employee). The ERC cannot be claimed for an employee for any payroll period in which the employer may claim the Work Opportunity Tax Credit (WOTC) for such individual.

The credit will be claimed on Form 5884-A, which is filed with the employer’s federal tax return.

If you have questions, please contact Terence Avella at 212.331.7690 | tavella@BERDONLLP.com or your Berdon advisor.

Berdon LLP, New York Accountants

 

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