A “non-refundable tax credit” means that an employer gets a refund only up to the amount the employer owes in taxes. A “refundable tax credit” means that the employer receives a refund even if it is more than the employer owes in taxes. When you complete line 16 of Form 941, Form 941-SS, or Schedule B, you are accounting for the non-refundable portion of the credit. This applies to family leave and sick pay for an entire quarter.
It includes the employer's share of Medicare taxes and health plan expenses that go toward those salaries. With ERC, the non-refundable part is equivalent to 6.4% of the salary. This is the part of the Social Security tax paid by the employer. You can apply for the ERC if you overtaxed in previous Form 941 filings.
This is done using Form 941-X. The term “non-refundable” is incorrect if the company has not claimed the ERC. If the employer paid its share of Social Security tax through federal deposits, then the non-refundable section of the employee withholding tax credit can be recovered. This is explained in line 18 of the instructions on Form 941-X.
The employee retention tax credit is one of those credits for which companies may need to modify their forms. 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. You must complete a separate Form 941-X for each Form 941 that you need to modify.
You fill in the company information on each page, indicating in the upper right corner the return you are correcting. You must also show the date you realized that the original form is incorrect. You have three years from the original filing date of Form 941 to file Form 941-X applying for the ERC. 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.
On the other hand, if the refundable credit you are eligible for is greater than the total amount you paid in payroll taxes, your company will receive a refund for the difference. 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. The term “non-refundable” is an inappropriate term if the taxpayer did not apply for the ERC and instead paid the employer's share of Social Security tax through federal tax deposits. If the refundable credit exceeds the amount of tax you owe, you 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. The ERC is fully refundable because the eligible employer can receive a refund if the amount of the ERC is greater than the applicable employment taxes owed by the eligible employer. 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 a credit is non-refundable, the amount cannot be used to increase the refund you receive or to create a tax refund that didn't exist before.
If the employer's share of the Social Security tax was paid, then the non-refundable part of the ERC is refundable. 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. .
