At the end of the quarter, the Employee Retention Credit (ERC) was created under the CARES Act to help companies cover the cost of keeping their workers employed during the pandemic. Employers who file an annual payroll tax return can file an amended return using Form 944-X (employer's adjusted annual federal tax return or request for reimbursement) or Form 943-X (adjusted federal employer tax return for agricultural employees or request for reimbursement) to apply for credits. However, an eligible employer cannot apply for the ERC on any qualifying salary that it has used to obtain PPP loan forgiveness. The ERC encourages businesses to retain their employees and provides a refundable tax credit against certain payroll taxes.
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. To simplify eligibility for the ERC, Thomson Reuters has created a tool to help employers determine if they qualify for the credit. To be eligible for the ERC, a portion of an employer's business must have gross revenues of at least 10% of gross revenues (determined by the same calendar quarter of 2018) or if the hours of service performed by the employee are that part of the company no less than 10% of the total number of hours of service performed by all employees of the employer's company. The amount of the credit is calculated based on a percentage of “qualified wages,” including attributable qualifying health plan expenses that an eligible employer pays to employees.