On September 29, 2017, President Trump signed into law the Disaster Tax Relief and Airport and Airway Extension Act of 2017. Section 5023 of the Act creates an employee retention credit for certain employers affected by Hurricane Harvey, Hurricane Irma, and/or Hurricane Maria.
To be eligible for the credit, the employer must have been actively conducting a trade or business within a federally designated disaster zone on a certain date (August 23, 2017, in the case of Harvey; September 4, 2017, in the case of Irma; and September 16, 2017, in the case of Maria) and become inoperable before January 1, 2018, as a result of hurricane damage.
The credit is treated as a current year business credit under Internal Revenue Code (IRC) § 38(b), and is based on qualified wages paid by an eligible employer to an eligible employee. For this purpose, an “eligible employee” is an employee whose principal place of employment on the applicable date shown above was in a designated disaster zone. The term “qualified wages” means wages paid to an eligible employee on or after the applicable date shown above and before January 1, 2018, for the period during which the business first became inoperable through the date when the business resumed significant operations. Qualified wages include wages paid without regard to whether the employee performs no services, performs services at a location other than his or her principal place of employment, performs services at his or her principal place of employment before significant operations have resumed.
The credit amount is equal to forty percent (40%) of the qualified wages paid and is capped at $6,000 per eligible employee. Also, an eligible employer cannot claim the credit for an otherwise eligible employee if the employer is allowed a Work Opportunity Tax Credit with respect to the employee under IRC § 51.
- The “hurricane credit” could provide some needed relief for businesses affected by the recent hurricanes, as well as helping employee retention while working towards resuming full operations.
- The “hurricane credit” will help businesses in 104 counties in states across the Gulf of Mexico and Atlantic coasts.
For more information on the matters discussed above, please contact the MFA Tax Team.