The Employee Retention Credit (ERC) is a refundable tax credit established by the federal government to help businesses cover the cost of keeping their staff employed. This credit is available under the CARES Act and encourages companies to keep their employees on payroll. To qualify for the ERC, employers must be designated as “qualified employers” under Internal Revenue Section 52 or 414, depending on their business structure. The credit is based on the qualified wages paid to employees during a period in which operations were suspended due to an outbreak of illness or a sharp reduction in total income.
Qualified wages include specific health plan charges disbursed during any qualifying quarter in which the company ceased operations. However, payments made in connection with the termination of a former employee's employment relationship are not considered qualifying wages for the ERC. Similarly, payments made to authorized real estate agents of real estate brokerage firm Y do not constitute wages within the meaning of section 3121 (a) of the Code and, therefore, are not qualified salaries for the purposes of the employee retention credit. Wages paid to employees for the hours for which they provided services are not considered qualified wages for the purposes of the employee retention credit. The minister's salary and stewardship allowance do not constitute salaries within the meaning of section 3121 (a) of the Code and, therefore, are not qualified salaries for the purposes of the employee retention credit.
In addition, any qualifying wages that are taken into account for the purposes of the employee retention credit cannot be considered for the paid family medical leave credit under section 45S of the Internal Revenue Code (the Code).The 60 percent of the salaries that Employer T pays to administrative staff for the hours during which employees actually provide services are not considered qualifying wages for the purposes of the employee retention credit. Eligible employers are entitled to an employee retention credit based on the qualified wages paid to their employees. The amount could often exceed what the employee would have earned without the pandemic. For more information on determining maximum amounts that are considered qualifying wages, employers can schedule a free consultation with a tax credit specialist. This will help employers identify if they are eligible, request the full amount of the credit and ensure proper payroll tracking and documentation.