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. A company may be eligible for ERTC under this provision, even if its revenues increased during the corresponding quarter. 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.
However, salaries and compensation paid with the proceeds of a PPP loan that have been forgiven do not count as qualified salaries for the ERTC. The Coronavirus Aid, Relief and Economic Security Act (CARES), enacted on March 27, established the Employee Retention Tax Credit (ERTC), which entitled eligible employers to a refundable tax credit against certain federal employment taxes. IRS guidance states that eligible employers must report the total salaries qualified for the ERTC on their federal employment tax returns (usually Form 941, the employer's quarterly federal tax return). The IRS has also clarified that tips can be considered qualified wages for ERTC purposes, as long as they are Medicare salaries.
While a government order may limit commerce, travel, or group meetings, for example, by closing or restricting access to an employer's normal workplace, but does so in a way that does not affect the employer's operation of its business or business, this does not amount to a suspension of business operations for purposes of the ERTC. In any calendar quarter in which the ERTC amount exceeds the OASDI taxes imposed on the employer, the franchise is considered a refundable overpayment. 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 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.
The ERTC is a payroll tax credit (not an income tax credit) and will ultimately be reported on Form 941. Any eligible salary that is considered in determining the allowable ERTC will not be counted as a salary for the purposes of other tax credits and the forgiveness of PPP loans. The CARES Act also provided that qualified salaries could not exceed the amount that would have been paid to employees for working an equivalent duration during the 30 days immediately preceding the period in which those salaries and other compensation were eligible for the ERTC. The new guidance explains that the election is made simply by not claiming the ERTC for those specific salaries in the corresponding 941 return. Any employer that was treated as part of a single employer under the aggregation rules (more than 50% of common ownership) was also not eligible for the ERTC if any member of the employer's aggregate group received a PPP loan.