The Employee Retention Credit (ERC) was established under the CARES Act to encourage companies to keep employees on their payroll during the pandemic. When completing line 16 of Form 941, Form 941-SS, or Schedule B, employers are accounting for the non-refundable portion of the credit. This applies to family leave and sick pay for an entire quarter and includes the employer's share of Medicare taxes and health plan expenses that go toward those salaries. The non-refundable part is equivalent to 6.4% of the salary, which is the employer's share of Social Security tax.
If a company has not claimed the ERC, they can still recover the non-refundable portion of the employee withholding tax credit if they paid their share of Social Security tax through federal deposits. This is explained in line 18 of the instructions on Form 941-X. To apply for this credit, businesses must complete a separate Form 941-X for each Form 941 that they need to modify. They must also show the date when they realized that the original form was incorrect.
The ERC is fully refundable because if the amount of the ERC is greater than the applicable employment taxes owed by the eligible employer, they will receive the difference as a refund. If an employer determines that you were an eligible employer during a previous quarter in which you did not apply for the ERC, you can apply for the credit retroactively by filing an adjusted quarterly federal tax return from the employer or a request for reimbursement on IRS Form 941-X. To ensure that you follow all procedures correctly and receive all of the credit due, you should consult an ERC specialist. The CARES Act originally established the ERC to encourage companies to keep employees on their payroll during the pandemic.
If a credit is non-refundable, it cannot be used to increase the refund you receive or to create a tax refund that didn't exist before. Many companies are not very sure what their business position is in terms of receiving the ERC, especially the non-refundable part of the tax credit. To sum up, if you have not claimed your ERC yet, you can still recover your non-refundable portion of employee withholding tax credit if you paid your share of Social Security tax through federal deposits. You can apply for this credit retroactively by filing an adjusted quarterly federal tax return from your employer or a request for reimbursement on IRS Form 941-X.
To ensure that you follow all procedures correctly and receive all of the credit due, it is best to consult an ERC specialist.