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. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. 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. 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 IRS has also clarified that tips can be considered qualified wages for ERTC purposes, as long as they are Medicare salaries. 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 ERTC is available for companies of all sizes: there is no limit to the number of employees, although it is easier for small businesses to take advantage of it. As stated in Accounting Today One of the most important issues being discussed by the IRS, Congress and the AICPA are the millions of companies that are being attacked by tax credit companies seeking to help them apply for the Employment Withholding Tax Credit (ERTC).
If you haven't yet applied for PPP loan forgiveness, consider applying for non-payroll expenses to maximize the salary you can use to apply for your ERTC. The deadline for eligible businesses to apply for the ERTC is with their quarterly Form 941 tax returns, which are due on July 31, October. Business tax filers will need additional payroll data and other documents to file their quarterly returns with the ERTC. The ARPA, for example, allows small employers who received a Paycheck Protection Program (PPP) loan to also apply for the ERTC.
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. 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. 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.