These FAQs are not included in the Internal Revenue Bulletin and therefore cannot be relied upon as a legal authority. This means that information cannot be used to support a legal argument in a court case. An employer that receives a tax credit for qualified wages, including allocable qualifying health plan expenses, 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 (ERC) and the credit under section 45S of the Internal Revenue Code.
The client employer cannot use the salaries that were used to apply for the ERC and declared by the third-party payer on behalf of the client employer to apply for the 45S credit on their income tax return. Any eligible employer can choose not to apply the Employee Retention Credit for any calendar quarter if they don't apply for the credit on the employer's payroll tax return. The ERC is a refundable tax credit for qualified wages that your company paid to employees. The credit applies to payroll taxes, such as federal income tax withholding, FICA and Medicare. The purpose of the credit was to encourage companies to keep employees on the payroll even if employees weren't working due to the COVID-19 pandemic.
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 analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. The IRS has protective measures to prevent wage increases from being counted for the credit once the employer is eligible to receive the ERC. If an eligible employer decides not to apply for the ERC in a calendar quarter, they are not prohibited from requesting the credit in a later calendar quarter for qualifying wages paid in that next quarter, as long as they meet the requirements to apply for the credit. The PEO does not have to complete Schedule R with respect to employers for whom it does not apply for an employee retention credit. In addition, an eligible employer can file a request for reimbursement and make an interest-free adjustment for a previous quarter to apply for the ERC to which they were entitled in a previous quarter, following the rules and procedures for making such requests or adjustments.
While the Employee Retention Tax Credit (ERTC) program has officially expired, this does not affect a company's ability to apply for ERTC retroactively. If a third-party payer (CPEO, PEO, or a 3504 agent) applies for ERC on behalf of their customer's employer, they must collect from their customer all information necessary to accurately apply for ERC on behalf of their customer. If a third-party payer applies for ERC on behalf of their client employer, they must, at request from IRS, be able to obtain from their customer and provide IRS with records that prove customer's eligibility to receive ERC. The Infrastructure Investment and Employment Act introduced a significant change in employee retention credit. Section 2301 (e) of CARES Act states that rules similar to those in section 280C (a) of Internal Revenue Code (the Code) will apply for purpose of applying ERC. You can apply for Families First Coronavirus Response Act (FFCRA) credit and ERC if your company qualifies.
However, upon request from IRS, third party payer must obtain from client's employer and provide IRS with records that prove customer's eligibility to receive ERC.