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. 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.
If you have further questions or concerns about the retroactive termination of the ERTC, please contact your Walker & Armstrong tax advisor. 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 addition, most of the notice reiterates the ERTC FAQs that were previously posted on the IRS website. Consequently, 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 to maximize the qualified salaries available to ERTC.
Basically, if they are considered to be majority owners, their salaries are not ERTC-qualified salaries. In addition, since the beginning of the ERTC program, several laws have come into effect that affect the way in which credit can be applied for. 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. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment.
As a result of the retroactive termination of the ERTC, most employers (see exception below) cannot claim the credit with respect to salaries paid after September 30. The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. 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.