The answer is no, but it does affect your income tax return. The benefits of receiving the credit far outweigh its effect on your taxes. These frequently asked questions are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority. This means that information cannot be used to support a legal argument in a court case.
An employer who receives a qualified wage tax credit, including assignable expenses from a qualified health plan, does not include the credit in gross income for federal income tax purposes. Neither the portion of the credit that reduces labor taxes applicable to the employer nor the refundable part of the credit are included in the employer's gross income. The client employer is responsible for avoiding a “double benefit” with respect to the employee retention credit and the credit under section 45S of the Internal Revenue Code. The client employer cannot use the salaries that were used to apply for the employee retention credit and reported by the third payer on behalf of the client employer to claim the 45S credit on their income tax return.
Any eligible employer can choose not to apply for the employee retention credit for any calendar quarter by not claiming the credit on the employer's employment tax return. Small employers receive improved benefits under the ERC regime. Specifically, for as long as they are an eligible employer, they can include salaries paid to all employees. Large employers can only include salaries paid to employees for not providing services.
Technically, yes, but only qualifying salaries are paid while mandates are in effect and have a more than nominal impact on the business. 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. The employee retention credit is a fully refundable tax credit that eligible employers apply for against certain employment taxes. It is not a loan and does not have to be repaid.
For most taxpayers, the refundable credit exceeds the payroll taxes paid in a credit-generating period. While an employer cannot include salaries financed by a PPP loan in the ERC calculation, PPP funds only apply to eight to ten weeks of wage expenses. ERC eligibility periods are longer. PPP loans can also finance non-wage expenses.
No, but, if possible, assign the maximum allowable non-wage costs to the PPP that is forgiven. It is likely that the fund's sister-sister holding companies can be treated as separate operations or businesses when considering the status of eligible employers, since the Fund that owns the holding companies is not an active operation or business (rather a passive investment vehicle). Cherry Bekaert LLP and Cherry Bekaert Advisory LLC practice an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations and professional standards. Cherry Bekaert LLP is a licensed independent CPA firm that provides certification services to its clients, and Cherry Bekaert Advisory LLC and its subsidiary entities provide tax and business advisory services to its clients.
Cherry Bekaert Advisory LLC and its subsidiary entities are not licensed CPA firms. The entities that belong to the Cherry Bekaert brand are independently owned and are not responsible for the services provided by any other entity that provides services under the Cherry Bekaert brand. Our use of the terms “our Firm” and “we” and “us” and terms of similar importance denotes the alternative practice structure of Cherry Bekaert LLP and Cherry Bekaert Advisory LLC. Any eligible salary that is considered in determining the allowable ERTC will not be counted as a salary for the purposes of several other tax credits and the forgiveness of PPP loans.
It is important to note that the ERTC is subject to income tax because the employer's aggregated wage deductions are reduced by the amount of the credit. Learn more about the employee retention tax credit and hear the story and perspective of an organization that has used and benefited from the ERTC in this episode of The Wrap podcast. The Consolidated Appropriations Act provided a very welcome amendment to the CARES Act by allowing all eligible employers to apply for the ERTC, even if they have received a PPP loan. These credits can be substantial, and the IRS has made it clear that the ERTC is included in the employer's taxable income in the year in which the salaries that generate the credit are paid.
To better illustrate this, depending on how certain states treat federal deductions not allowed by IRC 280C (the specific section of the code referred to in the ERTC), states such as California, Georgia, Illinois, Maryland, New York and Texas generally allow corporate taxpayers to deduct Wages and health plan expenses that the IRS doesn't allow. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. Eligible employers can apply for the ERTC by calculating the ERTC amount for a pay period and reducing the required payroll deposit by that amount. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is treated as a refundable overpayment. The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries on the corresponding $941 return.
ERTC eligible salaries for a small employer are all salaries and health insurance benefits paid to an employee during the period in which the employer is considered an eligible employer. Eligible salaries under the ERTC for an eligible employer that is not considered a small employer are the salaries and health insurance benefits paid to an employee who is not providing services due to the effects of the pandemic. . .
