If a credit is non-refundable, the amount cannot be used to increase the refund you receive or to create a tax refund that didn't exist before. The amount of your refund or savings is not allowed to exceed the amount of taxes due. The ERC was a tax credit in which business owners received a refundable tax credit for keeping employees on the payroll during the COVID-19 pandemic. You can currently request a retroactive refund three years after the date of your original qualifying tax return, thanks to a legislative extension.
This means that the credit served as an overpayment and would be refunded to you after subtracting your share of those taxes. If the person preparing the form does not change the number in column 4 to a negative one, the taxpayer will not benefit from a full ERC credit. The IRS published a series of frequently asked questions about the employee retention credit available as part of the recently published CARES Act. If the refundable credit exceeds the amount of tax you owe, you will receive the difference as a refund.
The employee retention credit was a refundable tax credit intended to allow small business owners to continue paying their employees during the COVID-19 pandemic. 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. 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. Employers who knew how to apply for the employee retention credit before the program ended used Form 7200.
This means that the credit would serve as an overpayment and would be refunded to you after subtracting your share of those taxes. The purpose of the ERC was to encourage employers to keep employees on the payroll even if they weren't working during the period covered due to the effects of the coronavirus outbreak. The employee retention credit applies to workers employed full or part time if their employers met the requirements. If you have any questions about the ERC and whether your company meets the requirements, contact your CPA or tax advisor.