The Employee Retention Credit (ERTC) is a refundable tax credit that eligible employers can request to cover certain payroll taxes. It was allowed from the employer's share of social security taxes (6.2% rate) and the railroad retirement tax on all salaries and compensation paid to all employees during the quarter. Companies can no longer pay salaries to apply for the ERTC, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. The ERTC is available to churches and other religious organizations that were affected by capacity restrictions imposed by the government for meetings or that experienced a significant decrease in their gross revenues. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act.
This law increased the employee limit to 500 to determine what salaries are applicable to the credit. Consequently, each of them is eligible to receive the employee retention credit only for wages paid to an employee who does not provide services due to (a total or partial suspension of operations by government order) or (a) a significant decrease in gross income. ERC credits are calculated based on the qualifying wages paid to employees during their status as an eligible employer. For most companies that take advantage of this program, refundable tax credits far exceed the payroll taxes paid by employers. ERC benefits may be greater than the amounts a company received in PPP funding. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity.
Also, remember that if a customer has applied for a PPP loan and will be forgiven for it, they may now be eligible for the retention credit for employees with certain salaries. Employers reported the total qualifying wages and the employee retention credit related to COVID-19 on Form 941 for the quarter in which the qualifying wages were paid. Because of the complexities of eligibility for the employee retention credit, Thomson Reuters has updated the employee retention credit tool to help all employers determine if they qualify for the credit. The IRS has protective measures to prevent wage increases from being counted for the credit once the employer is eligible to receive the employee retention tax credit.