The Employee Retention Credit (ERC) under the CARES Act is a great incentive for businesses to keep their employees on payroll. When you complete line 16 of Form 941, Form 941-SS, or Schedule B, you are accounting for the non-refundable portion of the credit. This applies to family leave and sick pay for an entire quarter, including the employer's share of Medicare taxes and health plan expenses that go toward those salaries. The non-refundable part of the ERC is equivalent to 6.4% of the salary, which is the employer's share of Social Security tax.
If you have overreported taxes on previous Form 941 filings, you can apply for the ERC using Form 941-X. The term “non-refundable” is incorrect if the company has not claimed the ERC. If the employer paid its share of Social Security tax through federal deposits, then the non-refundable section of the employee withholding tax credit can be recovered. This is explained in line 18 of the instructions on Form 941-X.
The employee retention tax credit is one of those credits for which companies may need to modify their forms. To apply for this credit, businesses must complete a separate Form 941-X for each Form 941 that they need to modify. They must also show the date they realized that the original form was incorrect. You must complete a separate Form 941-X for each Form 941 that you need to modify. You fill in the company information on each page, indicating in the upper right corner the return you are correcting. You must also show the date you realized that the original form is incorrect.
You have three years from the original filing date of Form 941 to file Form 941-X applying for the ERC. Companies that file the quarterly Form 941, which were previously eligible but were not classified as startup recovery companies, are no longer eligible for the ERC. The non-refundable portion of the ERC does not exceed the employer's share of the Medicare tax (2.9%) on all salaries for the quarter. Qualified ERC salaries include the portion of group health plan expenses (including employer contributions and employee contributions before taxes) that goes to salaries that would otherwise be eligible. If you meet all requirements and are not classified as a startup recovery company, indicate the total amount of ERC for both quarters in which your company met all requirements.
If this number is not changed to a negative one in column 4, then you will not benefit from a full ERC credit. To ensure that you follow all procedures correctly and receive all of the credit due, it is best to consult an ERC specialist. This means that many companies are not very sure what their business position is in terms of receiving the ERC, especially when it comes to understanding how much of it is refundable.