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. However, some self-employed people may qualify for the ERTC if they employ other workers in their trade or business. The Internal Revenue Service can also issue further guidance on the ERTC, so contact the IRS if you have any questions. The early termination of the ERTC means that companies must pay withheld payroll taxes to monetize their anticipated credit, advised Marvin A.
In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the excess is considered a refundable overpayment. Depending on the size of your company and the amount of qualified salaries paid during the quarter, the ERTC may still be substantial. For example, if your company has flexibility in the PPP forgiveness period, first determining the quarters in which you may have qualified for the payroll credit may be helpful in obtaining the maximum benefit from both the ERTC and the PPP. For businesses severely affected by COVID-19, the ERTC offers more help during the third and fourth quarters.
PBMares customers who plan to apply for the ERTC under the initial recovery provision in the third quarter should include the tax credit on their third quarter payroll tax return (Form 94) to avoid a delay in reimbursement. The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries in the corresponding 941 return. Business tax filers will need additional payroll data and other documents to file their quarterly returns with 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.
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 ERTC has been designed to encourage companies of all sizes to keep employees on their payroll during this difficult economic period. 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.