The non-refundable part of the ERC is 6.4% of profits. This is the employer's contribution to Social Security. The employee retention credit, which would be a wage credit, rewards employers for keeping workers on their 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. It includes the employer's share of Medicare tax and health plan expenses that goes to those salaries. With ERC, the non-refundable part is equivalent to 6.4% of the salary. This is the part of the Social Security tax that the employer pays.
You can apply for the ERC if you overreported taxes on previous Form 941 filings. This is done 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.
The above example represents a simplified example of how to claim the ERC using Form 941-X. There are a lot of other factors to consider. For more information on how the ERC applies to your company's specific circumstances, contact your Meaden representative & Moore. John Nicklas is vice president of the Assurance Service Group.
He has more than 20 years of experience meeting accounting and business advice needs. If you choose to have Square Payroll claim the ERC on your behalf, the following information will be included in the corresponding quarterly filings on Form 941. An eligible employer is considered to choose to exclude the qualifying salaries stated in the employer's PPP loan forgiveness application for purposes of applying for the ERC. If you meet the requirements, and not as a startup recovery company, indicate the total amount of ERC for the quarters of the first and third quarters in which your company met the requirements. 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 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 ERC is fully refundable because the eligible employer can receive a refund if the amount of the ERC is greater than the applicable employment taxes owed by the eligible employer. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) originally established the ERC to encourage companies to keep employees on the payroll during the pandemic. 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.
If the employer's share of the Social Security tax was paid, then the non-refundable part of the ERC is refundable. If an employer determines that you were an eligible employer during a previous quarter in which you did not apply for the ERC, you can apply for the credit retroactively by filing an adjusted quarterly federal tax return from the employer or a request for reimbursement on the IRS Form 941-X. If you are a startup recovery company, provide the ERC amounts for the third and fourth quarters, as separate amounts per quarter. If a positive number in column 3 is not changed to a negative number in column 4, the ERC indicated on Form 941-X will be unnecessarily reduced.