Companies can no longer pay their salaries to apply for the employee retention tax credit, but they have until 2024 and, in some cases, 2025, to analyze their payroll during the pandemic and apply for the credit retroactively by filing an amended tax return. These FAQs are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority. This means that the information cannot be used to support a legal argument in a court case. The operation of a business or business is partially suspended if a competent government authority imposes restrictions on the employer's operations by limiting trade, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19, so that the employer can continue with some of its usual operations, but not all.
The CARES Act does not require employers to pay qualified wages. In addition, eligible employers can choose not to apply for the employee retention credit. The credit is allowed against employer participation in social security taxes under section 3111 (a) of the Internal Revenue Code (the “Code”) and the portion of taxes imposed on railroad employers under section 3221 (a) of the Railroad Retirement Tax Act (RRTA) that corresponds to social security taxes under section 3111 (a) of the Code. Yes, but not for the same salary.
The amount of qualified wages for which an eligible employer can apply for the employee retention credit does not include the amount of qualified wages for family leave and sick leave for which the employer receives tax credits under the FFCRA. An eligible employer cannot receive the employee retention credit if it receives a PPP loan authorized under the CARES Act. An eligible employer receiving a PPP loan should not apply for employee retention credits. If the withheld payroll tax deposits were not sufficient to cover the expected credit amount, the employer could file Form 7200 (prepayment of employer credits due to COVID-19) to request prepayment of the remaining amount of credit.
The credit for each eligible employer will be the amount of the credit distributed among the members of the aggregate group based on each member's proportional share of the qualifying salaries that give rise to the credit. In these circumstances, the third payer files a payroll tax return (such as Form 94) for the wages he paid to employees with his name and EIN, and the common-law employer files a payroll tax return for the wages he paid directly to employees under his own name and EIN. Employers who file Form 7200, Prepayment of Credits for Employers Due to COVID-19, to request early payment of credits must include in the form the name and EIN of the third payer they use to file their payroll tax returns (such as Form 94, if the third party payer uses their own EIN on payroll tax returns). If an eligible employer completely reduces the required federal payroll tax deposits that would otherwise be due to the wages paid in the same calendar quarter to its employees in anticipation of receiving the credits, and has not paid qualifying wages that exceed this amount, it should not file Form 7200.
Eligible businesses, Smith said, can file a request for retroactive reimbursement from the ERTC on qualifying wages paid previously during the last calendar quarters by filing Form 941-X, the employer's adjusted quarterly federal tax return, or requesting a refund. For more information and examples, see Determining the maximum amount of an eligible employer's employee retention credit. Employers also declare any qualifying wages for sick leave and qualifying family leave for which they are entitled to a credit under the FFCRA on Form 941. The ARPA, for example, allows small employers who received a loan from the Check Protection Program (PPP) to also apply for the ERTC.
The employer could withhold federal income tax withheld from employees, employee participation in Social Security and Medicare taxes, and the employer's share of Social Security and Medicare taxes for all employees. An eligible employer could reduce their payroll tax deposits during the quarter by the amount of credit expected for the quarter. Because of the complexities of eligibility for the employee retention credit, Thomson Reuters has updated the employee retention credit tool to help all employers determine if they qualify for the credit. If the amount of the credit exceeded the employer's share of those federal payroll taxes, then the excess was considered an overpayment and reimbursed to the employer.
To help accelerate and ensure the proper processing of Form 7200 and the reconciliation of the prepayment of credits with the employment tax return when an employer uses an outside payer, such as a CPEO agent, PEO, or other agent of section 3504, for only a portion of its workforce, a common law employer must include the name and EIN of the third payer only on Form 7200 for the prepayment of credits for salaries paid by the third payer and declared in the third-party payer's payroll tax return. For more information, see Determining Which Employers Are Eligible to Apply for the Employee Retention Credit. An eligible employer can obtain Form 7200, prepayment of employer credits due to COVID-19, online and can fax their completed form to 855-248-0552. .