The CARES Act employee retention credit encourages companies to keep employees on their payroll. The ERTC is a refundable credit that businesses can claim for qualified wages, including certain health insurance costs, paid to employees. The ERC is a refundable credit that businesses can claim for qualified wages, including certain health insurance costs, paid to employees. This is especially true if businesses have a PPP loan and are also eligible to claim the employee retention credit.
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. In addition to using it to reduce the labor taxes that companies must pay, those with fewer than 500 employees can request an advance payment of the credit from the IRS and get it in cash if the credit is more than they would owe in labor taxes. For most companies that take advantage of this program, refundable tax credits far exceed payroll taxes paid by employers. This law allows certain hardest hit companies to claim the credit against the qualifying wages of all employees rather than just those who do not provide services.
To claim the credit for prior quarters, employers must file Form 941-X, Employer's Adjusted Quarterly Federal Tax Return or Claim for Reimbursement, for the applicable quarters in which qualifying wages were paid. In addition to the Employee Retention Credit, the Families First Coronavirus Response Act (FFCRA) established COVID-19 tax credits. For more information on the employee retention credit, visit the Cherry Bekaert ERC Guidance Center or contact Martin Karamon. 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.
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. Instead, the employer must reduce the wage deductions on your income tax return for the tax year in which you are an eligible employer for ERC purposes. ERC credits are calculated based on eligible wages paid to employees during eligible employer status. Read on to learn the ins and outs of the ERC, including how the employee retention credit works and how it can help you recover from the COVID-19 pandemic.
Employers with 100 or fewer full-time employees can use all salaries of employees who work, as well as any paid time that is not working, with the exception of paid leave provided for in the Families First Coronavirus Response Act.