The ERTC is a refundable payroll tax credit for salaries paid by an employer whose company is totally or partially suspended due to an order related to COVID-19 or who is experiencing a decrease of at least 10 percent in gross income compared to it. calendar quarter of the previous year. 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. 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.
The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries in the corresponding 941 return. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. Eligible employers can apply for the ERTC by calculating the ERTC amount for a pay period and reducing the required payroll deposit by that amount. Unlike tax deductions that reduce a company's taxable income, the ERTC tax credit is subtracted from the amount of tax owed by a qualifying company. Originally, employers had to choose between a Paycheck Protection Program (PPP) loan or applying for the Employee Retention Tax Credit, or ERTC, for short.
It's important to note that the ERTC is available to companies of any size and there are no minimum or maximum restrictions on the number of employees your company can have. 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. So, if you're worried about what exactly that ERTC is, how it works, and whether or not your company might qualify for it, this is the crash course on the employee retention tax credit you've been looking for. 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.
While budgets are always tight, it's a good idea to invest in professional help from a qualified CPA or other tax professional to help you determine exactly how the ERTC fits your unique business and business plan. It's important to note that the ERTC is subject to income tax because the employer's aggregated wage deductions are reduced by the amount of the credit. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment. 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.