According to the IRS, employers can still apply for the Employee Retention Credit (ERC) by filing amended employment tax returns, even though the coronavirus pandemic (COVID-19) era tax credit intended to help employers and employees during the health crisis expired last year. Eligible employers generally applied for the ERC by stating their total qualified wages and related health insurance costs for each quarter on their forms 941 (employer's quarterly federal tax return). To account for tax credits related to COVID-19, such as the ERC, the IRS had to review Form 941 (and other forms in the 941 series) several times. The IRS also reviewed Form 941-X (Employer Adjusted Quarterly Federal Tax Return or Request for Refund).
According to the instructions in Form 941-X, employers can correct the overreported taxes on a previously filed Form 941 if Form 941-X is filed within three years of the date Form 941 was filed or two years after the date you paid the tax declared on Form 941, whichever occurs later. The instructions also say that employers can correct unreported taxes on a previously filed Form 941 if Form 941-X is filed three years after the date Form 941 was filed. The IRS refers to these time frames as a period of limitations. And, for the purposes of the statute of limitations, forms 941 for a calendar year are considered filed on April 15 of the following year if they were filed before that date.
This is because the opportunity to modify payroll tax overpayments has not yet expired relative to the period of time the ERC was available. Therefore, if an employer currently discovers that it was eligible for the ERC when the credit was available, it would file a Form 941-X to declare the overpayment of payroll taxes and, ultimately, apply for the ERC after its end date. Form 941 is used to declare income and social security and Medicare taxes withheld by the employer from employee salaries, as well as the employer's participation in social security and Medicare taxes. 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 take stock of their payrolls during the pandemic and apply for the credit retroactively by filing an amended 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). 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. 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. Employers who use a Professional Employers Organization (PEO) or Certified Professional Employer Organization (CPEO) don't file an individual Form 941 on their behalf, so it's important that they understand how they would reconcile this information and receive credit.
Eligible employers, including PPP beneficiaries, can apply for a credit against 70% of qualified wages paid. Each eligible employer will declare their employee retention credit on their payroll tax return (or on the payroll tax return of their third payer) regardless of their accrual with other entities such as a single employer in order to determine their eligibility for the credit. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. While the Employee Retention Tax Credit (ERTC) program has officially expired, this does not affect a company's ability to apply for the ERTC retroactively.
When determining the qualifying salaries that can be included, the employer must first determine the number of full-time employees. Most employers, including colleges, universities, hospitals and 501 (c) organizations after the enactment of the United States Rescue Plan Act, may be eligible for credit. . .