To claim the new Employee Withholding Credit, eligible employers will report their total qualifying wages and related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning on the second trimester. The ERTC is a refundable credit that businesses can claim for qualified wages, including certain health insurance costs, paid to employees. Employee Retention Credit is a CARES Act Relief Measure for Businesses. It is a fully refundable tax credit that eligible employers who can keep employees on payroll can claim.
For most taxpayers, the refundable credit exceeds payroll taxes paid in a credit-generating period. The plan sounds almost too good to be true, keep your employees on their payroll and receive a 50% to 70% payroll tax credit from the federal government. This law increased the employee limit to 500 to determine what salaries apply to the credit. 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.
Employers reported total qualified wages and employee retention credit related to COVID-19 on Form 941 for the quarter in which qualified wages were paid. If the employment tax deposits withheld were not enough to cover the amount of the advance credit, the employer may file Form 7200 (Advance Payment of Employer Credits Due to COVID-19) to request prepayment of the remaining amount of the credit. In addition to the Employee Retention Credit, the Families First Coronavirus Response Act (FFCRA) established COVID-19 tax credits. The credit was allowed against the employer's share of social security taxes (6.2 per cent rate) and the railroad retirement tax on all wages and compensation paid to all employees during the quarter.
Previously, the Consolidated Appropriations Act expanded qualifications to include businesses that applied for a loan under the Paycheck Protection Program (PPP), including borrowers from the initial PPP round who were not originally eligible to claim the tax credit. If you have other people working for you, you may be able to take credit as long as those people meet employee qualifications. Again, you can take both the employee retention credit and the paid leave credit, but you can't claim both credits for the same salary. COVID-19 Tax Credits Help Employers Pay for Coronavirus-Related Paid Sick and Family Leave Under the FFCRA.
The retroactive termination of the Employee Retention Credit caused a lot of confusion and concern about penalties for both business owners and accountants. The Employee Retention Credit is available to churches and other faith-based organizations that were affected by government-mandated capacity restrictions for meetings or experienced significant decreases in gross income. Depending on your business, you can also apply for the credit on Form 944, Employer's Annual Federal Tax Return, or Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. We specialize in the CARES Act, Employer Withholding Tax Credit, Tax Consulting, and Tax Reporting Options.