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Intuit

How to set up and track the Employee Retention Credit under the CARES Act

Learn how to pay your employees when your business is closed due to COVID-19.

With QuickBooks and Intuit Online Payroll, you can ensure your employees get paid if you have to close and if you are eligible for the provisions found under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

What's the Employee Retention Credit under the CARES act?

Under the CARES Act, an eligible employer may be able to offset the impact of COVID-19 with an Employee Retention Credit. Generally, this allows an employer to get a refundable tax credit for up to 50% of the qualified wages paid to employees during the closure up to a maximum of $10,000 wages per employee, which amounts to $5,000 in credits, per employee.

Before you can take an employee retention credit, you need to do a few things. Here's what to do.

Make sure you qualify for the credit

Before you can set up the Employee Retention Credit in your payroll, you need to make sure you qualify for the credit. The size of your workforce, the structure of your business, and the reason why your business may or may not be closed all effect whether you can take this credit.

Note: If you have any questions about the CARES Act or deferring the employer portion of social security, please talk with your accountant or accounting professional.

Set up your payroll to accept and track the credit

Once you've determined you are eligible to accept the credit, you need to first set up your payroll to accept and track the credit. Since the CARES Act's Employee Retention Tax Credit covers regular time, overtime, and company contributions to health care, you’ll need to set each of these items in your payroll, and then run payroll.

Note: If you have qualifying wages and didn’t include them on past paychecks, you'll need to contact us prior to July 1st, 2020. Employees who fall into one of the categories below will not earn enough during the rest of 2020 for you to get the maximum allowable retention credit:
  • Full-time employees who make less than $10/hr
  • Part-time employees

Select your payroll to get started:

Note: Don’t know what payroll service you have? Find out which payroll service you have.

Step 1: Set up your employees with the pay types

  1. Go to Workers or Payroll menu,then select Employee.
  2. Select the employee you’d like to add paid leave to.
  3. In the How much do I pay an employee section, select the edit icon to add more paytypes
  4. Under the CARES Act section, select the pay types that apply to you: CARES Act Regular and CARES Act Overtime.
  5. If applicable, select and enter any Employer Paid Health Insurance Premium amount to be tracked on each check.
  6. Select Done.

Step 2: Run your payroll using the pay types

  1. Select on Run Payroll from the Overview screen.
  2. If you have multiple pay schedules select the schedule you are paying.
  3. Enter hours in the corresponding fields:
    • For regular hours in the Employee Retention Credit Regular.
    • For any overtime hours in the Employee Retention Credit Overtime.
    • If applicable, enter in the Employer Health Insurance Premium.
    • If your employee is salaried, select the salary amount shown to reduce the hours by the number of hours you are paying your employee with the Employee Retention pay items.
    • If your employee is commission only, you will need to convert their pay to an hourly rate.
  4. Enter any other items you need to include.
  5. Select Preview Payroll.
  6. Review the paychecks, and then select Submit Payroll.

Step 1: Set up your employees with the pay types

  1. Go to Employees.
  2. Select the employee you’d like to add the CARES Act pay types to.
  3. In the Pay section of the Employee Overview screen select the Edit button
  4. In the What additional ways do you pay your Employee section, under the CARES Act section, select the pay types that apply to you: either the CARES Act Regular or CARES Act Overtime.
  5. If applicable, select and enter any Employer Paid Health Insurance Premium amount to be tracked on each check.
  6. Select OK.

Step 2: Run your payroll using the pay types

  1. Select the Payday tab.
  2. If you have multiple pay schedules, select the schedule you are paying.
  3. Enter hours in the corresponding fields.
    • For regular hours in the Employee Retention Credit Regular.
    • For any overtime hours in the Employee Retention Credit Overtime.
    • If applicable, enter in the Employer Health Insurance Premium.
    • If your employee is salaried you will need to reduce the hours of salary. To do this, add the new pay item hours and select preview. After selecting Create Paychecks, edit the checks to reduce the salary hours.
    • If your employee is commission only, you will need to convert their pay to an hourly rate.
  4. Enter any other items you need to include.
  5. Select Create Paychecks.
  6. Review the paychecks, and then select Approve Paychecks.

Step 1: Set up your employees with the pay types

  1. Go to Employees.
  2. Select the employee you'd like to add the CARES Act pay types to.
  3. In the Pay section of the Employee Overview screen select the Edit button
  4. In the What additional ways do you pay your Employee section, under the CARES Act section, select the pay types that apply to you: either the CARES Act Regular or CARES Act Overtime.
  5. If applicable, select and enter any Employer Paid Health Insurance Premium amount to be tracked on each check.
  6. Select OK.

Step 2: Run your payroll using the pay types

  1. Select the Payday tab.
  2. If you have multiple pay schedules, select the schedule you are paying.
  3. Enter hours in the corresponding fields.
    • For regular hours in the Employee Retention Credit Regular.
    • For any overtime hours in the Employee Retention Credit Overtime.
    • If applicable, enter in the Employer Health Insurance Premium.
    • If your employee is salaried you will need to reduce the hours of salary. To do this, add the new pay item hours and select preview. After selecting Create Paychecks, edit the checks to reduce the salary hours.
    • If your employee is commission only, you will need to convert their pay to an hourly rate.
  4. Enter any other items you need to include.
  5. Select Create Paychecks.
  6. Review the paychecks, and then select Approve Paychecks.

Step 1: Set up your expense accounts for the retention credit

Once you determine your eligibility, you’ll need to set up your expense account to be able to help track the eligible wages to use towards tax credit until the December 31, 2020 expiration.

  1. Go to the Lists menu, then select Chart of Accounts.
  2. Select the Account ▼ dropdown, then select New.
  3. Choose Expense, then select Continue.
  4. From the Other Account Type dropdown, select Other Expense.
  5. Give your expense account a name, such as CARES Expense, in the Name field, fill out all the relevant information, and select Save and Close.

Step 2: Set up the 3 payroll items

Once you’ve set up your QuickBooks to accept the retention credit, you now need to set up each credit.

CARES Retention Credit - Employee Addition

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Addition, then select Next.
  4. Give your pay type a name, such as CARES Retention Emp, in the text field and select Next.
  5. Select CARES Expense (or whatever you named the expense account in Step 1) as the expense account, then Next.
  6. In the Tax Tracking type window, Select CARES Retention Cr.-Emp, then Next.
  7. In the Taxes window, select Next.
  8. In the Calculate Based on Quantity window, select Calculate Based on Quantity , and select Next.
  9. In the Default Rate and Limit window, select Finish.

CARES Retention Credit - Health (Company Contribution)

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. Select Company Contribution, then select Next.
  4. Give your company contribution a name, such as CARES Retention - Health credit, and select Next.
  5. On the Agency for company-paid liability screen, select Cares Expense from the Liability account dropdown, and select CARES Expense (or whatever you named the Expense account, from step 2) from the Expense account dropdown, and then select Next.
  6. On the pop message to confirm you selected the same account, select Yes.
  • Selecting the same account for Liability and Expense accounts ensures your liabilities are not overstated.
  1. On the Tax tracking type window, choose CARES Retention Cr.- Health, then select Next.
  2. On the Taxes window, select Next.
  3. In the Calculate Based on Quantity window, select Neither, and select Next.
  4. In the Default Rate and Limit window, select Finish.

Note: If you have QuickBooks Desktop Payroll Enhanced, you will need to run a Quick Report to view total amounts. The limit of the credit you can receive is 50% of wages up to $10,000 wages (including employer health care) per employee for all calendar quarters.

Example: Eligible Employer pays Employee B $8,000 in qualified wages in Q2 2020 and $8,000 in qualified wages in Q3 2020. The credit available to the Eligible Employer for the qualified wages paid to Employee B is equal to $4,000 in Q2 and $1,000 in Q3 due to the overall limit of $10,000 on qualified wages (or a $5,000 limit on the overall tax credit) per employee for all calendar quarters.

CARES Retention Credit (Payroll Item)

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Select Custom Setup, then select Next.
  3. On the Payroll item type window, select Other Tax, then select Next.
  4. On the Other tax window, select CARES Retention Credit, and then Next.
  5. In the Name used in paychecks and payroll report window, enter CARES Retention Credit in the text field, then select Next.
  6. In the Agency for company-paid liability window, select the agency you pay taxes to from the dropdown, select Payroll Liabilities in the Liability account dropdown, and select Payroll Expenses in the Expense account dropdown, and select Next.
  7. From the Taxable Compensation Window, select Finish.

Step 4: Run a regular payroll

  1. Select Employees, then Pay Employees
  2. (Skip to step 3 if you need to run an unscheduled payroll) Select the appropriate schedule in the Create Paychecks section, and select Start schedule Payroll.
  3. Verify the Pay Period Ends date, Check Date, and Bank Account the money is drawn from.
  4. Place a checkmark next to the employee and select Open Paycheck Detail.
  5. Under Earnings remove the amount listed under Rate. Under Other Payroll Items, in the Item Name dropdown select CARES Retention Credit - Emp. or the name used during setup. Enter the employee’s hour rate and quantity of hours.
    1. Check: In the Employee Summary you should see “Regular” wages (salary or hourly) set to 0, with wages listed under the name entered for the credit during setup.
  6. Select Save Next to go to the next employee, or select Save Close to go back to the Enter Payroll Information window.
  7. When the checks are ready to be created, select Continue.
  8. Review the Check/Direct Deposit printing options.
  9. Verify the amounts for each employee, and select Create Paychecks.
  10. Print paychecks and print pay stubs now or later if desired.

Step 5: Pay liabilities

Note: QuickBooks Desktop Payroll Assisted customers will have their credits adjusted automatically when they send payroll.
  1. Go to the Employees menu, then select Payroll Center.
  2. Select the Pay Liabilities tab.
  3. In the Pay Taxes & Other Liabilities section, mark the Federal 941 and other liabilities, make sure the check amount and item list under Payroll Liabilities are accurate, and then select View/Pay.
  4. Go to the Payroll Liabilities dropdown and enter the CARES Act Retention Credit and the amount of the 941 tax liabilities you qualify for based on the Quick Report of (Expense account name from step 2) you created. You’ll need to enter the amount of the credit as a negative amount.
    1. If the liability is less than the available credit, the credit can rollover to future payroll or you can apply for a refund via the Form 7200, check the IRS website for more information. Select Recalculate to update check.
  5. Select To be printed if you want to print the check. If you used a handwritten check, enter the check number or other reference in the NO. field. If you pay liabilities by Electronic Funds Transfer (EFT), clear the To Be Printed checkbox and type EFT in the No. field of the liability check.
  6. Select Save & Next or Save & Close.
  7. You’ll see your Payroll Liability Payment Summary and can then review the payments you scheduled, print a copy of the summary, and print checks.
  8. You can re-run the QuickReport to see the difference in the liabilities credit you are still able to claim if your credit was larger than your liability.
Note: Under the CARES Act, you may also qualify to defer the Employer Portion of the Social Security Payments to a later date.

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