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 refundable credit that companies can apply for on qualified salaries, including certain health insurance costs, paid to employees. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. Therefore, it is important to ensure that all eligible expenses, including non-payroll costs, such as utility, rent and operating expenses, to name a few, are included in PPP loan forgiveness applications in order to maximize the qualified salaries available to ERTC.
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. Consequently, if previously salaries were wrongly classified as qualified wages for the ERTC, then amendments to 941 would be necessary to correct any unintentional errors. Basically, if they are considered to be majority owners, their salaries are not ERTC-qualified salaries. The Coronavirus Aid, Relief and Economic Security Act (CARES) created ERTC to help companies keep employees on the payroll.
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. 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. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment.
Originally, employers had to choose between a Paycheck Protection Program (PPP) loan or applying for the Employee Retention Tax Credit, or ERTC, for short. The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries in the corresponding 941 return. 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. The ERTC is treated as a refund in the form of business loans, so it's as if it were money that the government owes you, as if you were rewarded for surviving these past few years as a company.
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. 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.
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