Employers can still apply for the ERTC retroactively by filing Form 941-X, the employer's adjusted federal tax return, or request for reimbursement, for each quarter in which they have paid qualifying wages. Employers can file Form 941-X up to three years after the original payroll tax due date, which is normally April 15. The good news for staffing business owners is that the termination of the program does not affect their ability to apply for the ERTC retroactively. Staffing companies have a minimum statute of limitations of three years from the filing of Form 941 to perform a retrospective analysis and determine eligible salaries. The IRS published guidelines that explain that, in order to request credits from previous quarters, companies must file a Form 941-X, adjusted federal tax return from the employer or request for reimbursement, for the applicable quarters in which qualifying wages were paid.
The employee retention credit under the CARES Act encourages companies to keep employees on their payroll. The instructions in Form 7200, Prepayment of Employer Credits Due to COVID-19, provide information on who can correctly sign a Form 7200 for each type of entity. Eligible employers will declare their total qualified wages for the purposes of the employee retention credit for each calendar quarter on their federal employment tax returns, generally Form 941, Employer's Quarterly Federal Tax Return. Employer F can file a Form 7200 to request a credit or refund of this amount before the end of the quarter (but not for any amount of the employee retention credit that has already been used to reduce the deposit obligation).
Employers who file Form 7200, Prepayment of Credits for Employers Due to COVID-19, to request early payment of credits must include in the form the name and EIN of the third payer they use to file their payroll tax returns (such as Form 94, if the third party payer uses their own EIN on payroll tax returns). Because quarterly employment tax returns aren't filed until after qualifying wages have been paid, some eligible employers may not have enough federal payroll taxes set aside to deposit with the IRS to fund their qualifying wages by reducing the amount to be deposited, especially after factoring in the allowable deferral of the employer's participation in the social security tax under section 2302 of the CARES Act. If you file a Form 7200, you will need to reconcile this advance credit and its deposits with the qualifying wages listed on Form 941, the employer's quarterly federal tax return (or other applicable federal employment tax return, such as Form 944 or Form CT-), starting with Form 941 for the second quarter, and you may have an underpayment of federal payroll taxes for the quarter. An eligible employer generally makes this choice by not asking the ERC for those qualifying wages on their federal employment tax return.
However, because the ERTC is often misunderstood, many companies that qualify for a tax credit don't even file the return. There is no limit on the number of employees or the size of your company that would prevent you from obtaining credit. This will ensure that the prepayment of the credits received by the common law employer is properly reconciled with the employment tax return filed by the third payer for the calendar quarter in which the advance payment of the credits is received. Employers also declare any qualifying wages for sick leave and qualifying family leave for which they are entitled to a credit under the FFCRA on Form 941.
In these circumstances, the third payer files a payroll tax return (such as Form 94) for the wages he paid to employees with his name and the EIN, and the common-law employer files a payroll tax return for the wages he paid directly to employees under his own name and EIN. To help accelerate and ensure the proper processing of Form 7200 and the reconciliation of prepayment of credits with the employment tax return when an employer uses an outside payer, such as a CPEO agent, PEO, or other section 3504 agent, for only a portion of its workforce, a common law employer must include the name and EIN of the third payer only on Form 7200 for the prepayment of credits for wages paid by the third party payer and declared on the third payer's payroll tax return. To help speed up and ensure the proper processing of Form 7200 and to reconcile the prepayment of credits with the payroll tax return for the calendar quarter, only third payers who file a payroll tax return on behalf of an employer using the name and EIN of the third party payer should appear on Form 7200. The eligible employer can defer the deposit and payment of the employer's share of the social security tax under section 2302 of the CARES Act and can do so before reducing any deposit in anticipation of the credit.