The Employee Retention Credit (ERC) under the CARES Act encourages companies to keep their employees on their payroll. This law increased the employee limit to 500 to determine what salaries are applicable to the credit. 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. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act.
The ERC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. The IRS has protective measures to prevent wage increases from being counted for the credit once the employer is eligible to receive the employee retention tax credit. Companies can no longer pay salaries to apply for the employee retention tax credit, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. Also, remember that if a customer has applied for a PPP loan and will be forgiven for it, they can now be eligible for the employee retention credit with certain salaries.
The real question on every employer's mind is how best to optimize employee retention credit without facing any complexity. Keeping up to date with the rules and guidelines for applying for the employee retention credit can quickly get complicated. Illinois employees should place certain federal and state labor law posters where employees and applicants can easily view and read them. The essence of the employee retention credit is to encourage employers to keep their employees on the payroll. 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 notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit.