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. If an eligible employer uses a reporting agent to file Form 941, the employer's quarterly federal tax return, the reporting agent must reflect the employee retention credit on the Form 941 that you file on behalf of the employer.
Section 45B establishes a business tax credit for the amount of the restaurant employer's FICA tax liabilities attributable to employee tips that exceed those considered wages for the purpose of meeting federal minimum wage requirements. 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. An eligible employer can file their own Form 7200, on the prepayment of employer credits due to COVID-19, to apply for early credit. This law increased the employee limit to 500 to determine what salaries are applicable to the 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. 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. 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. 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 recognized that treating these amounts as gross income would defeat Congress's clear intention to allow employers to take advantage of the employee retention credit, in addition to other COVID-19 relief measures, subject to certain restrictions to prohibit double counting. The PEO does not have to complete Schedule R with respect to employers for whom it does not apply for an employee retention credit. If an eligible employer uses a CPEO or a 3504 agent to declare their federal payroll taxes on an aggregated Form 941, the CPEO agent or 3504 will declare the employee retention credit on their aggregated Form 941 and in Annex R, Assignment Program for those who file the Aggregate Form 941, which you have already filed.
The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. 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. . .
