The Employee Retention Credit (ERTC) is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. The Coronavirus Aid, Relief and Economic Security Act (CARES) created the ERTC to help businesses keep their employees on the payroll. Unfortunately, there are some common misconceptions about the ERTC, such as “I can't claim ERC because I have more than 500 employees” or “I can't claim ERC because my company never closed”, which prevent business owners from determining if they qualify. The credit is available from the employer's share of social security taxes (6.2% rate) and the railroad retirement tax on all salaries and compensation paid to all employees during the quarter.
To apply for credit for previous quarters, employers must file Form 941-X, Employer's Adjusted Quarterly Federal Tax Return or Request for Refund, for the applicable quarters in which qualifying wages were paid. 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 ERTC was designed to encourage companies of all sizes to keep employees on their payrolls during this difficult economic period. Qualified income, which includes specific health plan charges, disbursed during any qualifying quarter in which the company ceased operations, qualifies for the ERTC.
To qualify as partially suspended, the employer's business operations must have been limited due to a federal, state, or local order, proclamation, or decree that affected the employer's operations. In this case, employers can recover up to the amount that their employee was paid for working a comparable amount of time in the 30 days before the time of economic insecurity. 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. In addition to the employee retention credit services offered by Aprio, they also work with other credits to increase a company's liquidity.
However, if a self-employed worker has staff on the payroll, they can qualify for the ERTC to receive the salaries paid to other employees. Your small business qualifies for the ERC if it is subject to federal legislation on insurance contributions due to the wage structure of its employees. To determine if you meet all of these requirements and maximize your ERTC benefits, it is best to work with competent tax planning and advising services. Schedule your free employee retention credit consultation today to see how much of the employee retention tax credit your company qualifies for.