Who is Eligible for the Employee Retention Payroll Tax Credit?

The Employee Retention Credit (ERC) under the CARES Act is a fully refundable tax credit for employers that is equivalent to 50 percent of qualified wages (including allocable qualified health plan expenses) paid to their employees. This credit was designed to encourage companies of any size to keep their employees on their payroll during the COVID-19 pandemic. To be eligible for the ERC, employers must meet certain criteria. A full-time employee is one who works at least 30 hours a week or 130 hours in a month.

Employers must report the total qualifying wages and the employee retention credit related to COVID-19 on Form 941 for the quarter in which the qualifying wages were paid. Because of the complexities of eligibility for the employee retention credit, Thomson Reuters has created a tool to help employers determine if they qualify for the credit. Neither the part of the credit that reduces employment taxes applicable to the employer nor the refundable part of the credit are included in the employer's gross income. For more information on how to apply for the refundable employee retention credit, employers can consult applicable payroll tax return instructions or schedule for additional information on how to declare their tax liability.

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. If tax deposits are not sufficient to finance the credit, employers can file Form 7200, requesting early payment of the credit. The ERC was an invaluable lifesaver for many companies that had problems during the pandemic, providing some relief to struggling businesses that kept their employees on their payrolls even when government restrictions due to the pandemic forced them to suspend operations or affected their gross revenues.

Denise Lefler
Denise Lefler

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