Understanding the Refundable and Nonrefundable Portion of the Employee Retention Credit

The Employee Retention Credit (ERC) is a tax credit designed to help businesses keep their employees on payroll during the pandemic. It is a refundable tax credit, meaning that employers can receive a refund even if it is more than the amount they owe in taxes. However, there are certain exceptions, such as the Earned Income Tax Credit (EITC), Health Insurance Premium Tax Credit (PTC), Additional Child Tax Credit (ACTC), and the partially refundable U. S.

Opportunity Tax Credit (AOTC).To determine the non-refundable portion of the ERC, employers must complete a worksheet. This worksheet is used to calculate the value of the credit and then allocate any eligible expenses and taxes on wages paid, such as health care costs, business taxes, or other attributable charges to earnings. If an employer has already paid their share of Social Security and Medicare taxes, they are entitled to receive a refund of the taxes they paid. When requesting this credit for education expenses, Form 8863 separately calculates the reimbursable and non-refundable parts. Employers who knew how to apply for the ERC before it was suspended used Form 7200.

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. Disaster loan counselors can help businesses with the complex and confusing ERC program. It is important to understand the difference between refundable and non-refundable credits in order to maximize your tax savings. Non-refundable credits cannot be used to increase your tax refund or create a tax refund when you haven't yet received it. However, they can reduce your federal tax burden.

Denise Lefler
Denise Lefler

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