The Employee Retention Credit (ERC) was created to help businesses keep their employees on the payroll during the pandemic. This law allowed employers who were most affected by financial difficulties to claim the credit against the qualified salaries of all their employees, rather than just those who did not provide services. To ensure a successful claim process, employers must understand who qualifies for the ERC, as well as other aspects of eligibility and applications. Although many eligible employers did not apply for the credit, they still have time to file amended payroll tax returns and take advantage of the ERC. When determining the qualifying salaries that can be included, employers must first determine the number of full-time employees.
For an employer that qualifies for the ERC under the requirement of a government order, business operations must have been fully or partially suspended during the corresponding calendar quarter due to a government order limiting commerce, travel, or group meetings due to COVID-19. It is important to include all eligible expenses, such as non-payroll costs like utility, rent and operating expenses, in PPP loan forgiveness requests in order to maximize the wage requirements available for ERTC. Eligible employers, including PPP beneficiaries, can apply for a credit against 70% of qualified wages paid. Companies with more than 100 full-time employees can only use the qualified salaries of employees who did not provide services due to the suspension or decline of business activity. Changes in programs and incentives have made it difficult for many people to understand ERC qualifications. To do this, it is necessary to understand how this program works, who qualifies for the ERC and how to claim it.
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. The amount of eligible salaries depends largely on how the qualifying salaries were reflected in the PPP loan forgiveness application. 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 ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. To ensure that you are taking full advantage of this program and maximizing your potential savings, it is important to understand all aspects of eligibility and application requirements. Employers should consult with their tax advisors or other qualified professionals to ensure they are taking full advantage of all available credits and deductions.