Does the employer retention credit have to be repaid?

The credit is fully refundable because the eligible employer can receive a refund if the amount of the credit exceeds certain federal employment taxes owed by the eligible employer. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. If your company receives a refund of employee retention tax credits, you must include the amount refunded as income in your tax return for the year received. The repayment will reduce any repayment or increase any amount due for that year.

It's important to note that companies may have to reimburse all or part of the employee retention tax credit if it was requested in error or if the credit was greater than what the company was entitled to receive. Keep in mind that an eligible employer receiving these grants must keep records that justify where the funds were used. Remember that the credit can only be deducted for salaries that are not forgiven or that are expected to be forgiven under the PPP. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity.

The prepayment of any part of the ERC received by an employer that exceeds the amount to which the employer is entitled is an erroneous refund that the employer must reimburse. Previously, the Consolidated Appropriations Act expanded the requirements to include companies that applied for a loan under the Paycheck Protection Program (PPP), including borrowers from the initial round of the PPP who were not originally eligible to apply for the tax credit. The employee retention credit under the CARES Act encourages companies to keep employees on their payroll. In addition, since the creation of the ERTC program, several laws have come into force that influence the way in which credit can be requested.

Most employers, including colleges, universities, hospitals and 501 (c) organizations after the enactment of the United States Rescue Plan Act, may be eligible for credit. The notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit. When determining the qualifying salaries that can be included, the employer must first determine the number of full-time employees. The IRS has protective measures to prevent wage increases from being counted for the credit once the employer is eligible to receive the employee retention tax credit.

This law allowed some employers most affected by financial difficulties to be able to claim the credit against the qualified salaries of all their employees, rather than just those who did not provide services. However, companies must reimburse any amount received if it was claimed in error or if the credit was greater than what the company was entitled to receive. Companies can no longer pay salaries to apply for the employee retention tax credit, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. Employers who use a Professional Employers Organization (PEO) or Certified Professional Employer Organization (CPEO) do not file an individual 941 on their behalf, so it's important that they understand how they would reconcile this information and receive credit.

Eligible employers, including PPP beneficiaries, can apply for a credit against 70% of qualified wages paid. .

Denise Lefler
Denise Lefler

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