The Employee Retention Credit (ERTC) is a refundable tax credit that companies can claim on qualifying salaries, including certain health insurance costs, paid to employees. This credit was introduced during the COVID-19 pandemic to encourage employers to keep their employees on the payroll even if they weren't working due to the effects of the outbreak. The ERC is fully refundable, meaning that if the amount of the credit is greater than the applicable employment taxes owed by the eligible employer, they can receive a refund. It's important to note that the credit can only be deducted for salaries that are not forgiven or expected to be forgiven under the Paycheck Protection Program (PPP).
Employers who use a Professional Employers Organization (PEO) or a Certified Professional Employer Organization (CPEO) do not file an individual 941 on their behalf, so they should understand how to reconcile this information and receive credit. To apply for credit for previous quarters, employers must file Form 941-X, Employer's Adjusted Quarterly Federal Tax Return or Request for Refund, for the applicable quarters in which qualifying wages were paid. The employee retention credit (ERC) is a tax credit available to employers who have seen a reduction in their gross income due to the coronavirus pandemic. The credit was applied to their share of the employee's Social Security taxes and was fully refundable.
Most employers, including colleges, universities, hospitals and 501 (c) organizations after the enactment of the United States Rescue Plan Act, could be eligible for credit. Also, remember that if a customer has applied for a PPP loan and will be forgiven for it, they can now be eligible for the employee retention credit with certain salaries. The IRS has protective measures in place to prevent wage increases from being counted for the credit once an employer is eligible to receive it. Additionally, even though the ERTC program has officially expired, this does not affect a company's ability to apply for it retroactively.
Companies that had to suspend some or all of their operations due to government restrictions related to COVID-19 or companies that lost 50% of their gross revenues in the same quarter of the previous year qualified for the ERC. The notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit. Eligible employers, including PPP beneficiaries, can apply for a credit against 70% of qualified wages paid.