The Employee Retention Credit (ERC) is a refundable payroll tax credit created by Congress to help businesses and organizations retain their employees during the pandemic. The ERC is part of the CARES Act and is designed to reward companies for keeping their employees on the payroll. By filing Form 7200, companies can get their ERC reimbursement faster and use it to help offset the cost of keeping employees on the payroll during these difficult times. The Employee Retention Credit is a fully refundable tax credit that eligible employers can request to cover certain payroll taxes.
The ERC is refundable, meaning that companies can receive a refund if they have already paid their taxes for the year. The credit is calculated based on the qualifying wages paid to employees during their status as an eligible employer. For most taxpayers, the refundable credit exceeds the payroll taxes paid in a credit-generating period. This means that for most companies that take advantage of this program, refundable tax credits far exceed the payroll taxes paid by employers.
To apply for the ERC, employers must file an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters in which they were an eligible employer. For more information on the employee retention credit, visit Cherry Bekaert's ERC Guidance Center or contact Martin Karamon.