Benefit for Retention of Employees Affected by Hurricanes Irma & Maria
What is the Employee Retention Benefit?
The Employee Retention Benefit is a credit reimbursement that may be requested by Puerto Rico employers, a product of federal legislation established to assist employers affected by Hurricanes Irma and / or Maria. In this article we offer you a summary of said help or benefit, the applicable laws, the eligible employers and important information to request it.
Summary and Applicable Laws:
Puerto Rico was affected by Hurricanes Irma and Maria on September 6 and 20, 2017, respectively. Both hurricanes caused destruction of great proportions in our country, to the point that many employers could not operate after the passage of the same.
Due to this, on September 29, 2017 the President of the United States signed the Federal Law P.L. 115-63 known as the “Disaster Tax Relief and Airport and Airway Extension Act of 2017” (the “Act”), among other matters provide tax benefits to taxpayers affected by the passage of Hurricanes Harvey, Irma and Maria. Among these benefits was established the employee retention credit known by its acronym in English “ERC”.
On February 9, 2018, the Act was amended by Federal Law P.L. 115-123 known as the “Bipartisan Budget Act of 2018”. Through the Act and its amendment, a benefit was established for the retention of employees to employers who were rendered inoperative due to the damages caused by the aforementioned hurricanes, and who continued paying salaries or accruing wages to their employees despite not having resumed significant operations in their businesses.
With this amendment, on February 14, 2018, the Governor of Puerto Rico informed that the Government of Puerto Rico entered into an agreement with the Federal Treasury Department in order for the retention benefit to be applied to Puerto Rico and the affected employers. Said agreement between the parties is known as the “ERTC Implementation Plan” (the “Plan”) by which the eligibility parameters of the federal benefit for employee retention of employers in Puerto Rico were stipulated.
The Department of the Federal Treasury, based on the interpretation of the Act, amended by the “Bipartisan Budget Act of 2018”, and taking into account the tax specificities existing in Puerto Rico’s employers, determined that the benefit or credit applicable to employers in Puerto Rico would be between 26% or 32% depending on the employer category that we will explain. Said applicable benefit or credit will be calculated from the total of qualified salaries, up to a maximum of $ 6,000 for each eligible employee, during the period in which the business was inoperative until it resumed its significant operations and or before January 1, 2018.
The Government of Puerto Rico, through the Department of the Treasury, issued on June 8, 2018 the Internal Revenue Circular Letter no. 18-11 for the purpose of establishing: (1) the eligibility requirements of employers in Puerto Rico, in accordance with the provisions of the Plan and (2) the procedure for eligible employers in Puerto Rico to request the benefit through an electronic portal created.
The employers eligible to obtain the retention benefit are those who:
- As of September 16, 2017 (September 4, 2017 in the case of Hurricane Irma) it was dedicated to an industry or business in Puerto Rico and it was subject to income tax;
- Had employees on the payroll at the time that Puerto Rico was impacted by Hurricanes Irma and / or Maria;
- Your business became inoperative after Hurricanes Irma and / or Maria;
- Continued to pay salaries or accrued wages to its employees during the period that was inoperative and that ends on the date on which the business resumes significant operations or on before January 1, 2018, whichever occurred first;
- Filed all Withholding Vouchers (Forms 499R-2W / W-2PR), Quarterly Employed Income Tax Return Forms (Form 499 R-1A), Quarterly Unemployment and Disability Insurance Contributions (Form PR) -SD-10) and the Forms for the Federal Employer’s Quarterly Statement (Form 941PR) that should be filed in the year 2017;
- Be registered in the Registry of Merchant of the Unified Internal Revenue System, known as “SURI” of the Department of the Treasury of Puerto Rico;
In the case of employers affected by Hurricane Irma, their businesses must have been located in the following municipalities: Canovanas, Cataño, Culebra, Dorado, Fajardo, Loiza, Luquillo, Toa Baja, Vega Baja or Vieques.
Who will qualify to be an Eligible Employee?
An Eligible Employee shall be considered to be that employee of an Eligible Employer, whose place of employment as of September 16, 2017 (September 4, 2017 in the case of Hurricane Irma) was Puerto Rico and receives wages reported on Form 499R- 2 / W-2PR, known as the W-2.
In the case of Hurricane Irma, the employee’s main place as of September 4, 2017 is limited only to the municipalities of Canovanas, Cataño, Culebra, Dorado, Fajardo, Loiza, Luquillo, Toa Baja, Vega Baja and Vieques, exclusively.
Some family members of the employer will NOT be considered Eligible Employees; such as (1) sons, daughters, step-children, step-daughters or descendants of them; (2) brothers or sisters; (3) stepbrothers or stepsisters; (4) father, mother or ancestor of them; (5) stepfather or stepmother; (6) nephews or nieces; (7) uncles or aunts; (8) sons-in-law or daughters-in-law; (9) father-in-law or mother-in-law; or (10) brothers-in-law or sisters-in-law.
Qualified Wages and Inoperative Business:
In order to calculate the Benefit, Qualified Wages will be considered those payments that are accumulated or paid during the period beginning on the first day in which the business became inoperative at the main place of employment (September 4, 2017 in the case of Hurricane Irma and September 16, 2017 in the case of Hurricane Maria) and ends on the day the business resumes its significant operations in that place and or before January 1, 2018.
For its part, it is considered that the business became inoperative if it could not carry out its operations after the passage of Hurricanes Irma or Maria. To obtain the Benefit, the business will be considered inoperative for one or more of the following factors:
- The business operates in an unstable manner;
- Operations are reduced due to lack of electricity service or potable water service;
- Operations are reduced due to instability or lack of telecommunications service;
- The business suffered damages to the structure where it carries out its operations due to the hurricane;
- The business was not physically accessible to its employees or customers because of the hurricane; or
- The business could not receive raw materials or inventories to be able to operate.
Amount of the benefit:
Depending on the Category of the Employer, this will be the amount of the Benefit that can be requested. Employers will be classified under the following categories:
– Employers of more than $ 10,000,000: Those employers in Puerto Rico who have had a net income subject to contribution of more than ten million dollars ($ 10,000,000) for the taxable year 2017, will be entitled to request a benefit computed based on 26% of the first six thousand dollars ($ 6,000) of qualified wages paid or incurred by each eligible employee during the eligible period. Therefore, the maximum amount of the Benefit that an Employer may obtain under this category is $ 1,560 (26% of $ 6,000) for each eligible employee.
– Employers under $ 10,000,000: Those employers in Puerto Rico who have had a net income subject to contribution of less than ten million dollars ($ 10,000,000) for the taxable year 2017, will be entitled to request a Benefit computed based on 32% of the first six thousand dollars ($ 6,000) of qualified wages paid or incurred by each eligible employee during the eligible period. Therefore, the maximum amount of the Benefit that an Employer may obtain under this category is $ 1,920 (32% of $ 6,000) for each eligible employee.
For the purpose of the Puerto Rico income tax return, the Benefit does not affect the right to claim a deduction for wages paid and is not considered taxable income.
Our office has staff specialized in accounting and contributions, which will guide and work on your particular case, with the purpose of determining if you qualify, as an eligible employer, to obtain the retention benefit per employee. In turn, we will calculate the amount to be requested and we will work with all the necessary electronic procedure to request it.
For an orientation, you can contact us at 787-707-0404 and / or through our email: email@example.com, where we are to serve you.