There are several coronavirus payroll tax credits available to help employers manage their business during this time. One of these credits is the Employee Retention Credit (ERC). This credit is a CARES Act relief measure and is a fully refundable tax credit that employers who can keep their employees on payroll can claim. Read on for more information on the Employee Retention Credit and how it can help your business.
How Much is the Credit?
The refundable ERC is equal to 50% of qualified wages that eligible employers pay employees between March 13, 2020, through December 31, 2020. The maximum credit for each full-time employee for all calendar quarters is $5,000.
What Are Qualified Wages?
Qualifying wages include the wages and compensation employers pay to employees during the period. This will include qualified health plan expenses associated with those wages. Another contributing factor is the number of full-time equivalent employees you had in 2019. For employers who averaged fewer than 100 full-time equivalent employees, the credit is based on the wages you paid to all employees. If you averaged more than 100 FTEs, the credit is based on wages paid to employees who did not work during the period.
Who Qualifies for the Employee Retention Credit?
Eligible employers include those who:
- Have to completely or partially suspend operations during part of 2020 due to the coronavirus
- Or employers who experience a significant decline in gross receipts as a result of the coronavirus during 2020
Self-employed individuals cannot claim this credit for their earnings.
How Does the Credit Work?
The Employee Retention Credit lets employers take a 50% credit up to $10,000 of an employee’s qualifying wage. The credit will reduce your employer Social Security tax liability. If your credit ends up being more than your Social Security tax liability, you will receive a refund.
How Do I Claim the Credit?
Employers can opt to claim the ERC on their federal employment tax returns. This will mean claiming the credits on Form 941, the Employer’s Quarterly Federal Tax Return, or, depending on your business, Form 944 or Form 943.
If your federal employment taxes do not cover your payments, you can fill out Form 7200, Advance Payment of Employer Credits Due to COVID-19, and request an advance of the credits.
Can I Claim the ERC with Another Credit or Loan?
Unfortunately, employers cannot claim both the Employee Retention Credit and the Paycheck Protection Program loan. Employers also cannot receive the ERC after receiving a PPP loan and having the loan forgiven.
However, employers who applied for a PPP loan received the loan payment, and repaid the loan by May 14, 2020, will be treated as if they did not receive a PPP loan. This makes the employer eligible to claim the ERC if they qualify.
Finally, employers can claim both the Employee Retention Credit and the FFCRA paid leave credit, although not on the same wages.
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