Eligible employers will report their total qualifying wages for the purposes of the Employee Withholding Credit for each calendar quarter on their federal employment tax returns, usually Form 941, Employer's Quarterly Federal Tax Return. 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.
The credit must be claimed on a payroll tax return. 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. One of my clients sends me a link to a CPA chat from a different meeting and it appears that it is a tax credit with 5884 A and Code P. My question is whether the payroll credit reduces both salary expenses, lines 7 & 8 of Form 1120S, as well as the payroll tax charges included in line 12 ( taxes and licenses).
No, you do not need to provide the IRS with any documentation that supports your claim for the employee retention credit. 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. For example, there are paid vacation tax credits that have been extended and are available until the end of September. 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.
Learn more about this tax credit option by exploring the Q&As Employee Retention Credit below. It now appears that the latest guidance from the IRS says that the employee withholding credit must be reported on Form 1120-S on line 13g (Other Credits), using code P. Section 206 of the Taxpayer Certainty and Disaster Tax Relief Act (the Act) allows an eligible employer to take the Tax Withholding Credit from Employees (ERC), even if the employer has received a Paycheck Protection Program (PPP) loan. Also reduce the amounts reported on lines 7 and 8 by the non-refundable and refundable portions of the new CARES Act employee retention credit claimed on the corporation's employment tax return.
Eligible employers will report their total qualifying wages and related health insurance costs for each quarter on their employment tax returns (usually Form 941, Employer's Quarterly Federal Tax Return) during the applicable period. As mentioned, this ERC for COVID is a payroll tax credit, not an income tax credit (line 15P on the K-. 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. Also, remember that if a customer has taken and will be forgiven for a PPP loan, they may now be eligible for the employee retention credit on certain wages.
The credit is deducted from the employer's share of the Social Security tax, but the excess is refundable according to normal procedures.
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