Are you wondering if you are eligible for the Employee Retention Credit (ERC)? The answer is yes, if you are an employer who meets the requirements of the credit. Organizations described in section 501 (c) of the Internal Revenue Code (the “Code”) and exempt from taxes under section 501 (a) of the Code may be eligible employers for the purposes of the employee retention credit. The employer can 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. Employers reported the total qualifying wages and the employee retention credit related to COVID-19 on Form 941 for the quarter in which the qualified wages were paid.
The credit was allowed against 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. For purposes of determining eligibility for the employee retention credit, all employers, including tribal governments and tribal entities, must apply the aggregation rules of sections 52 (a) and (b) of the Code and sections 414 (m) and (o) of the Code. Self-employed individuals are not eligible for the employee retention credit with respect to their own self-employment income. As a result, employers can take full advantage of ERC and its benefits by relying on up-to-date technological solutions in combination with tax credit specialists who help employers identify if companies are eligible, apply for the full amount of credit, and ensure proper payroll tracking and documentation.
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. The federal government, the governments of any state subdivision or state policy, and any agency or agency of those governments are not eligible employers and are not entitled to receive the employee retention credit. Any tribal government or tribal entity that carries out a trade or business may be an eligible employer for the purposes of the employee retention credit, if it otherwise meets the credit requirements. For purposes of determining eligibility for ERC, a portion of an employer's business is considered greater than a nominal share of operations if either: (1) gross revenues from that part of business operations are not less than 10% of gross revenues (determined by same calendar quarter in 2018); or (2) hours of service performed by employees in that part of business operations are not less than 10% of total number of hours of service performed by all employees. As a general rule, section 162 of the Code determines whether activities constitute a trade or a business for purposes of ERC. For purposes of ERC, a tribal government is considered to carry out commercial or commercial activities, and all activities carried out by tribal government will be considered part of those commercial or commercial activities.