Consequently, each of them is eligible to receive the employee retention credit only for wages paid to an employee who does not provide services due to (a total or partial suspension of operations by government order) or (a) a significant decrease in gross income. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. To do this, it is necessary to understand how this program works, who qualifies for the ERC and how to claim it. For an employer that qualifies for ERC under the requirement of a government order, business operations must be fully or partially suspended during the applicable calendar quarter due to a government order that limited commerce, travel, or group meetings due to COVID-19. The amount of eligible salary depends largely on how qualified salaries are reflected in the PPP loan forgiveness application.
When determining the qualifying salaries that can be included, the employer must first determine the number of full-time employees. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity. Keep in mind that an eligible employer receiving these grants must keep records that justify where the funds were used. Most employers, including colleges, universities, hospitals and 501 (c) organizations after the enactment of the United States Rescue Plan Act, may be eligible for credit.
Primarily, the IRS states that qualifying wages are determined by the number of full-time employees an eligible employer has. The real question on every employer's mind is how best to optimize employee retention credit without facing any complexity. Employers who file an annual payroll tax return can file an amended return using Form 944-X (employer's adjusted annual federal tax return or request for reimbursement) or Form 943-X (adjusted federal employer tax return for agricultural employees or request for reimbursement) to apply for credits. To qualify as partially suspended, the employer's business operations must have been limited due to a federal, state, or local order, proclamation, or decree that affected the employer's operations.
However, the IRS makes it clear that expenses eligible for PPP forgiveness that were not included in the loan forgiveness request cannot be considered after the fact. For the purposes of the employee retention credit, a portion of an employer's business is considered greater than a nominal share of operations if the gross revenues of that part of business operations are not less than 10% of gross revenues (determined by the same calendar quarter of 2018) or if the hours of service performed by the employee are that part of the company not less than 10% of the total number of hours of service performed by all employees of the employer's company. If the withheld payroll tax deposits were not sufficient to cover the expected credit amount, the employer could file Form 7200 (prepayment of employer credits due to COVID-19) to request prepayment of the remaining amount of credit. Ohio has a complex set of requirements for labor law posters to ensure that employers provide employees with an opportunity to learn about their rights under them.
Before filing a claim with the ERC, employers must fully understand their background and best practices in order to prepare for a possible ERC audit of the IRS. .