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IRS Clarifies Employee Retention Credit For Disaster Areas

- by Roger McEowen

January 21, 2009

IRS has finally issued Publication 4492-B and it contains coverage of the Employee Retention Credit on pages 10 and 11.  The credit is 40% of qualified wages for each eligible employee capped at $6,000 in qualified wages per employee.  The credit is claimed on Form 5884-A.  But, in Publication 4492-B, IRS says qualified wages must be paid or incurred before January 1, 2009 for an eligible employee beginning on the date the taxpayer’s trade or business first became inoperable as a result of a Midwest disaster and ending on the date the business resumed significant operations (or December 31, 2008, whichever occurs first).  That interpretation will likely limit the extent of the credit for many employers. 

We didn’t have this interpretation at the time of the ISU tax schools this past fall, and it’s a different interpretation than what we thought was correct at that time.  We will keep you up-to-date on any other IRS interpretations of new laws that are different than we anticipated.  Stay tuned…