The American Rescue Plan has extended a number of tax benefits to small businesses, including the Employee Retention Tax Credit (ERTC). This credit is equal to 100% of the paid sick leave and paid family leave offered to employees. To take advantage of this credit, employers must first obtain Form 7200, Prepayment of Employer Credits Due to COVID-19. This form can be found online and can be faxed to 855-248-0552 once completed. Qualifying wages for the ERTC include the wage amounts paid by the employer to its employees plus the allocable health plan expenses.
A full-time employee is one who works at least 30 hours a week or 130 hours in a month. Eligible businesses can apply for a refundable credit against what they normally pay in Social Security taxes on up to 70% of the “qualified wages” paid to employees. If a third-party payer files the employment tax return on behalf of an employer using the employer's name and EIN and not with the name and EIN of the third party payer, the employer should not include the name and EIN of the third party payer. For single-member LLCs that are considered excluded entities for federal income tax purposes, the instructions state that the owner or a principal official who is duly authorized may sign the form.
Eligible employers with fewer than 500 full-time employees can also request advance payment from the ERTC using IRS Form 7200. If you file this form, you will need to reconcile this advance credit and its deposits with the qualifying wages listed on Form 941, your quarterly federal tax return (or other applicable federal employment tax return, such as Form 944 or Form CT-). You may have an underpayment of federal employment taxes for the quarter if you do not reconcile correctly. Many employers have already requested millions of dollars in tax credits through the ERTC.
Businesses that wish to apply for this credit must declare their total qualifying salaries, as well as related health insurance costs, on their quarterly tax returns (Form 941 for most employers). The credit for each eligible employer will be distributed among members of an aggregate group based on each member's proportional share of qualifying salaries that give rise to the credit.