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 was designed to encourage companies of all sizes to keep employees on their payroll during this difficult economic period. Companies that wish to apply for the ERTC must report their total qualified salaries, as well as related health insurance costs, on their quarterly tax returns (Form 941 for most employers).
The ERTC has been designed to encourage companies of all sizes to keep employees on their payroll during this difficult economic period. 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. 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. 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.
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. 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. However, some self-employed people may qualify for the ERTC if they employ other workers in their trade or business.
Employers cannot apply to the same employee for the ERTC credit and the work opportunity tax credit during the same period, nor can they claim the same salary under the ERTC and the employer credit in section 45S for the Family and Medical Leave Act (FMLA). A company may be eligible for ERTC under this provision, even if its revenues increased during the corresponding quarter. 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. However, if a self-employed person has staff on the payroll, they may qualify for the ERTC for salaries paid to other employees.
Eligible employers with fewer than 500 full-time employees can also request early payment from the ERTC using IRS Form 7200.