The ERTC is a refundable credit that companies can apply for on qualified salaries, including certain health insurance costs, paid to employees. One of the most important changes in the law is that the Employee Retention Tax Credit (ERTC) is now available to employers who previously received or will receive a Paycheck Protection Program (PPP) loan. 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. The IRS has also clarified that tips can be considered qualified wages for ERTC purposes, as long as they are Medicare salaries.
Business tax filers will need additional payroll data and other documents to file their quarterly returns with the ERTC. The ERTC was designed to help small businesses that lost revenue due to the pandemic, but only a few businesses are eligible. However, if a self-employed person has staff on the payroll, they may qualify for the ERTC for salaries paid to other employees. 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.
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). Eligible companies, Smith said, can file a retroactive ERTC refund request on qualified wages previously paid during the past calendar quarters by filing Form 941-X, the employer's adjusted quarterly federal tax return, or the request for reimbursement. 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). However, if your company did apply for a PPP loan, you cannot apply for the ERTC for the same salary counted for PPP forgiveness.
The ERTC was designed to encourage companies of all sizes to keep employees on their payroll during this difficult economic period. 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. The ARPA, for example, allows small employers who received a Paycheck Protection Program (PPP) loan to also apply for the ERTC. The early termination of the ERTC means that companies must return withheld payroll taxes to monetize their early credit, advised Marvin A.
While the ERTC is a great tool for helping struggling companies reduce their tax burden, it's still a little difficult to take advantage of it.