The ERTC is a refundable payroll tax credit that corresponds to salaries paid by an employer whose company is totally or partially suspended due to an order related to COVID-19 or who is experiencing a decrease of at least 10 percent in gross income compared to it. calendar quarter of the previous year. The ERTC is a tax credit that can only be accessed by companies, not individuals. It also only applies to employees on the payroll, not to contractors or the like.
Unlike tax deductions that reduce a company's taxable income, the ERTC tax credit is subtracted from the amount of tax owed by a qualifying company. This means that companies that take advantage of the tax credit will owe less money in taxes because of it. 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.
The ERTC was designed to help small businesses that lost revenue due to the pandemic, but only a few businesses are eligible. 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. If you haven't yet applied for PPP loan forgiveness, consider applying for non-payroll expenses to maximize the salary you can use to apply for your ERTC. 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.
Eligible employers with fewer than 500 full-time employees can also request early payment from the ERTC using IRS Form 7200. Originally, employers had to choose between a Paycheck Protection Program (PPP) loan or applying for the Employee Retention Tax Credit, or ERTC, for short. Since the ERTC is a refundable tax credit (rather than a non-refundable or partially refundable tax credit), it means that any qualifying company can access the full amount of the credit regardless of their income or other tax liabilities. 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.
While budgets are always tight, it's a good idea to invest in professional help from a qualified CPA or other tax professional to help you determine exactly how the ERTC fits your unique business and business plan. A financial professional can also help you ensure that you don't apply for the same payroll for both PPP and ERTC loan forgiveness. Employers cannot apply to the same employee for the ERTC credit and the work opportunity tax credit for the same period, nor can they claim the same salary under the ERTC and the employer credit in section 45S for the Family and Medical Leave Act (FMLA). 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.
Before receiving the credit, employers can choose to withhold the value of employment taxes up to the amount of the ERTC, instead of depositing it, without penalty. But companies could only apply for a forgivable loan from the Paycheck Protection Program (PPP) or the ERTC on the original bill, which meant that only a few of them could use the credit. . .
