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. No application for 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 your credit ends up being greater than your Social Security tax liability, you will receive a refund from the IRS. 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. Instead, the employer must reduce the deductions from wages on your income tax return for the tax year in which you are an eligible employer for ERC purposes.
If you qualify as a small employer (500 or fewer full-time employees in 201), then you can request early payment of the credit using Form 7200, Advance on Employer Credits Due to COVID-19. Because quarterly employment tax returns are not filed until after qualifying wages are paid, some eligible employers may not have enough federal employment taxes set aside for deposit with the IRS to fund their qualifying wages by reducing the amount to deposit, particularly after taking into account the allowable deferral of the employer's share of the social security tax under section 2302 of the CARES Act. The employer could withhold federal income tax withheld from employees, the employee's share of social security and Medicare taxes, and the employer's share of social security and Medicare taxes with respect to all employees. 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. This means that the credit will serve as an overpayment and will be refunded to you after subtracting your share of those taxes.
Employers who file an annual payroll tax return can file an amended return using Form 944-X (Employer's Adjusted Annual Federal Tax Return or Request for Refund) or Form 943-X (Employer's Adjusted Annual Federal Tax Return for Employees or request for reimbursement) to claim the credits. To help expedite and ensure proper processing of Form 7200 and reconciliation of advance payment of employment tax return credits when an employer uses a third-party payer, such as a CPEO agent, PEO, or other Section 3504 agent for only a portion of its workforce, an employer of common law must include name and EIN of the third payer only on Form 7200 for prepayment of wage credits paid by the third payer and reported on the third payer's employment tax return. This law increased the employee limit to 500 to determine what salaries apply to the credit. If you file a Form 7200, you will need to reconcile this advance credit and your deposits with the qualifying wages on Form 941, Employer's Quarterly Federal Tax Return (or other applicable federal employment tax return, such as Form 944 or Form CT-), beginning with Form 941 for the second quarter, and may have an underpayment of federal employment taxes for the quarter.
The credit applies to your share of the employee's Social Security taxes and is fully refundable. Credits represent 70% of eligible wages and associated qualified health plan expenses paid to employees. 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. .