The employee retention credit (ERC) is a fully refundable tax credit that eligible employers can request to cover certain payroll taxes. It's not a loan and doesn't have to be repaid. In most cases, the refundable credit exceeds the payroll taxes paid in a credit-generating period. This means that businesses can receive the credit and, therefore, the reimbursement, more quickly since payroll forms are submitted quarterly. The ERC is a fully refundable tax credit for employers that is equivalent to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay to their employees.
The credit is fully refundable because the eligible employer can receive a refund if the amount of the credit exceeds certain federal employment taxes owed by the eligible employer. This means that regardless of whether an employee worked 5 or 40 hours, it would be counted as 1 employee in the Paycheck Protection Program (PPP).Small and emerging businesses in all sectors can benefit from payroll tax credits, which can work in their favor. For more information on how to apply for the refundable employee retention credit, see How to apply for the employee retention credit. For more information and examples, see Determining the maximum amount of an eligible employer's employee retention credit. The IRS has noted that an eligible employer who pays qualifying wages in a calendar quarter will not be subject to any penalty under section 6656 of the Internal Revenue Code (IRC) for not filing federal payroll taxes.
Alternatively, companies can stop remitting to employees and the employer the share of Social Security and Medicare, as well as the federal withholding of employees in each pay period. The federal employment deposit includes the employee AND employer's share of Social Security and Medicare, as well as federal employee withholding. The credit is allowed against employer participation in social security taxes under section 3111 (a) of the Internal Revenue Code (the “Code”) and the portion of taxes imposed on railroad employers under section 3221 (a) of the Railroad Retirement Tax Act (RRTA) that corresponds to social security taxes under section 3111 (a) of the Code. The rules governing the number of employees for PPP loans are governed by the Small Business Administration (“SBA”) guidelines. In conclusion, businesses can take advantage of this refundable tax credit to cover certain payroll taxes. The IRS has noted that an eligible employer who pays qualifying wages in a calendar quarter will not be subject to any penalty under section 6656 of the IRC for not filing federal payroll taxes.
Small and emerging businesses in all sectors can benefit from payroll tax credits.