The number of employees increased to 500 or less (instead of 100 or less) and to more than 500 (instead of more than 100). Before receiving the credit, employers can choose to withhold the value of employment taxes up to the amount of the ERTC, instead of depositing it, without penalty. While the ERTC is a great tool to help struggling companies reduce their tax burden, it's still a bit difficult to take advantage of it. Learn more about the employee retention tax credit and hear the story and perspective of an organization that has used and benefited from the ERTC in this episode of The Wrap podcast.
Since then, the ERTC has been expanded twice so that more struggling companies can use it to lower their federal tax bill. The ERTC was designed to encourage companies of all sizes to keep employees on their payroll during this difficult economic period. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. However, if a self-employed person has staff on the payroll, they may qualify for the ERTC for salaries paid to other employees.
The Consolidated Appropriations Act provided a very welcome amendment to the CARES Act by allowing all eligible employers to apply for the ERTC, even if they have received a PPP loan. Therefore, eligible companies that didn't initially apply for their ERTC could do so until 2024, depending on when they originally filed or paid their business taxes. Eligible employers with fewer than 500 full-time employees can also request early payment from the ERTC using IRS Form 7200. ERTC eligible salaries for a small employer are all salaries and health insurance benefits paid to an employee during the period in which the employer is considered an eligible employer.
A financial professional can also help you ensure that you don't apply for the same payroll for both PPP and ERTC loan forgiveness. Eligible salaries under the ERTC for an eligible employer that is not considered a small employer are the salaries and health insurance benefits paid to an employee who is not providing services due to the effects of the pandemic. Any eligible salary that is considered in determining the allowable ERTC will not be counted as a salary for the purposes of several other tax credits and the forgiveness of PPP loans.