When claiming the credit on a timely filed payroll return, refunds tend to be processed and sent to eligible employers more quickly. In our observation, employers who claim credit for a return filed on time receive funds approximately three times faster than those claiming the credit in the amended 941-X. There is no application for an employee retention credit. Instead, employers can claim the Employee Withholding Credit on their federal employment tax returns.
In most cases, this means claiming the credits on Form 941, Employer's Quarterly Federal Tax Return. If a taxpayer is not performing an SSTB and their taxable income exceeds the 199A thresholds, the question of whether W-2 wages can include the wages that were used to calculate the employee retention credit becomes extremely important. The credit is fully refundable because the eligible employer can receive a refund if the amount of the credit is greater than certain federal employment taxes owed by the eligible employer. As the second quarter returns approach, you have the opportunity to take credit on a timely filed payroll tax return.
For more information and examples, see Determining the Maximum Amount of an Eligible Employer's Employee Retention Credit. If you qualify as a small employer (500 or fewer full-time employees in 201), you can request early payment of the credit using Form 7200, Advance on Employer Credits Due to COVID-19. The employee retention credit applies to persons employed full-time, part-time or otherwise if their employer meets the necessary requirements. Due to the complexities of eligibility for the employee retention credit, Thomson Reuters has updated the Employee Retention Credit Tool to help all employers discover their eligibility for the credit. It is a fully refundable tax credit that eligible employers who can keep employees on the payroll can claim.
The employee retention credit equals 50 percent of the qualifying wages (including qualifying health plan expenses) that an eligible employer pays in a calendar quarter. The notice includes guidance on how employers who received a PPP loan can retroactively claim the employee withholding tax credit. Credits represent 70% of eligible wages and associated expenses of the qualified health plan paid to employees. The retroactive termination of the Employee Retention Credit caused a lot of confusion and concern about penalties for both business owners and accountants.
To come to the conclusion that the 199A salary cap is lowered by any employee retention credit claimed, you need to follow the bouncing ball throughout the Internal Revenue Code. An eligible employer could reduce their employment tax deposits during the quarter by the amount of credit anticipated for the quarter. For more information, see Determine which employers are eligible to claim the employee retention credit.