The employee retention credit is a fully refundable tax credit for employers equal to 50 percent of qualifying salary (including the assignable qualified health plan). The ERTC is fully refundable and applies to the portion of payroll taxes paid by the employer. The IRS has developed a plan to allow eligible businesses to receive an early payment on their credit. This aims to alleviate the liquidity problems of many companies applying for the ERTC.
A company may be eligible for ERTC under this provision, even if its revenues increased during the corresponding quarter. Employers are not required to take advantage of the employee retention tax credit, and some may choose to fire or fire their employees instead of paying qualified salaries and applying for the ERTC. 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. 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.
Unlike other more broadly applicable provisions mentioned in the CARES Act, the ERTC is only available to certain qualified employers whose businesses have been affected by the coronavirus pandemic. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment. 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. 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 Employee Retention Tax Credit (ERTC) is one of many relief provisions included in the CARES Act to encourage small businesses to keep employees on staff rather than firing or firing them. 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. It's 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. The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries in the corresponding 941 return.
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. The IRS has also clarified that tips can be considered qualified wages for ERTC purposes, as long as they are Medicare salaries. While not a one-size-fits-all solution, ERTC can help provide help to businesses, especially in conjunction with other programs. To apply for the ERTC, eligible employers must report quarterly their total qualified salaries and any related credits.
