These FAQs are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority. This means that the information cannot be used to support a legal argument in a court case. An employer that receives a tax credit for qualified wages, including the attributable expenses of the qualified health plan, does not include the credit in gross income for federal income tax purposes. 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.
The client employer is responsible for avoiding a “double benefit” with respect to the employee retention credit and the credit under section 45S of the Internal Revenue Code. The client employer cannot use the wages that were used to claim the employee retention credit and declared by the third-party payer on behalf of the client employer to request the $45 credit on their income tax return. Any eligible employer can choose not to apply the employee retention credit for any calendar quarter by not requesting the credit on the employer's payroll tax return. Small employers receive greater benefits under the ERC regime.
Specifically, for as long as they are an eligible employer, they can include wages paid to all employees. Large employers can only include salaries paid to employees for not providing services. Technically, yes, but you only pay salaries that meet the requirements while the terms of office are in effect and have a more than nominal impact on the company. Instead, the employer must reduce wage deductions on their income tax return for the tax year in which they are an eligible employer for the purposes of the ERC.
The employee retention credit is a fully refundable tax credit that eligible employers request to cover certain payroll taxes. It's not a loan and doesn't have to be repaid. For most taxpayers, the refundable credit exceeds the payroll taxes paid in a credit-generating period. While an employer cannot include salaries financed by a PPP loan in the ERC calculation, PPP funds only apply to eight to ten weeks of wage expenses.
ERC eligibility periods are longer. PPP loans can also finance non-wage expenses. No, but, if possible, allocate the maximum allowable non-wage costs to the waiver of the PPP. It is likely that the fund's sister holding companies can be treated as separate operations or businesses when considering the status of an eligible employer, since the Fund owned by the holding companies is not an active operation or business (rather a passive investment vehicle).
Cherry Bekaert LLP and Cherry Bekaert Advisory LLC practice in an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations and professional standards. Cherry Bekaert LLP is an independent, certified public accounting firm that provides certification services to its clients, and Cherry Bekaert Advisory LLC and its subsidiaries provide tax and business advisory services to their clients. Cherry Bekaert Advisory LLC and its subsidiary entities are not authorized public accounting firms. The entities that belong to the Cherry Bekaert brand are independently owned and are not responsible for the services provided by any other entity that provides services under the Cherry Bekaert brand.
Our use of the terms “our firm” and “we” and terms of similar meaning denote the alternative practice structure of Cherry Bekaert LLP and Cherry Bekaert Advisory LLC. The ERC refund is not taxable when it is received; however, salaries equal to the ERC amount are subject to expense dismissal rules. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act. The customer, the employer and the third party payer will each be responsible for the payroll taxes due as a result of any improper request for employee retention credits that are unduly requested in accordance with their liability under the Internal Revenue Code and the regulations applicable to payroll taxes declared in the payroll tax return filed by the third party payer in which the credit was requested.
However, upon request from the IRS, the third party payer must obtain from the customer's employer and provide the IRS with records that confirm the customer's eligibility for the employee retention credit. The IRS has barriers to prevent wage increases from being factored into the credit once the employer is eligible for the employee retention tax credit. If a third-party payer applies for the employee retention credit on behalf of the client employer, the third-party payer can rely on information from the client employer about the client employer's eligibility to apply for the employee retention credit, and the client employer can maintain all records that prove the customer's eligibility to receive the employee retention credit. If a third-party payer (CPEO, PEO, or a 3504 agent) applies for the employee retention credit on behalf of the customer's employer, they must collect from the customer all the information necessary to accurately apply for the employee retention credit on behalf of their customer.
If a third-party payer applies for the employee retention credit on behalf of the client employer, they must, at the request of the IRS, be able to obtain from the customer and provide the IRS with records that prove the customer's eligibility to receive the employee retention credit. Also, remember that if a customer has applied for a PPP loan and will be forgiven for it, they may now be eligible for the retention credit for employees with certain salaries. Consequently, a similar denial of deduction would apply under the employee retention credit, so that the employer's total deductions would be reduced by the amount of the credit as a result of this denial rule. Although ERC is not considered taxable income, under Section 280C of the IRC, tax credits for employers create a reduction in wages in the amount of the credit.
Yes, if a common law employer is eligible to receive the employee retention credit, they are entitled to the credit regardless of whether they use a third-party payer (such as a reporting agent, payroll service provider, PEO, CPEO, or agent) to declare and pay your federal payroll taxes. If an eligible employer decides not to apply for the employee retention credit in one calendar quarter, the eligible employer is not prohibited from requesting the credit in a later calendar quarter for qualifying wages paid in that next quarter, as long as it meets the requirements to apply for the credit. . .
