The tax credits under this program are fully refundable for eligible employers. To be eligible, employers had to keep employees on their payroll. Even if your business received other assistance through a Check Protection Program (PPP) loan, it may still qualify for the ERC. If you meet the requirements, and not as a startup recovery company, indicate the total amount of ERC for the quarters of the first and third quarters in which your company met the requirements.
Qualified ERC salaries include the portion of group health plan expenses (including employer contributions and employee contributions before taxes) that goes to salaries that would otherwise be eligible. For example, if the credit you're entitled to through the non-refundable part of the ERC exceeds the total amount you owe in Social Security or Medicare taxes, you won't receive any refund for the excess amount. To ensure that you follow all procedures correctly and receive all of the credit due, you should see an ERC specialist. If you qualify for the ERC, but didn't use the credit in previous returns and overpaid taxes, you'll need to modify your quarterly returns with Form 941-X.
If an employer has already paid their share of Social Security and Medicare taxes, but wants to apply for ERC retroactively, those companies are entitled to receive a refund of the taxes they paid. If your company kept its team employed during the pandemic and was affected by a lockdown or a drop in revenues, you may be eligible for the ERC. If the person preparing the form does not change the number in column 4 to a negative one, the taxpayer will not benefit from a full ERC credit. This means that 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.
While many small business owners have taken steps to take advantage of the ERC to reduce their taxes due or receive a much-needed tax refund, many are unaware that a portion of the ERC may not be refundable. The non-refundable portion of the ERC does not exceed the employer's share of the Medicare tax (2.9%) on all salaries for the quarter. Companies that file the quarterly Form 941, which were previously eligible but were not classified as startup recovery companies, are no longer eligible for the ERC.