Eligible employers are entitled to an employee retention credit based on the qualified wages paid to their employees. For more information on the relationship between the employee retention credit and other tax credits, see Interaction with other credit and relief provisions. Payments made in connection with the termination of a former employee's employment relationship are not qualifying wages because they are payments from the previous employment relationship and, therefore, cannot be attributed to the time during which the employee retention credit can be requested. 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.
While Employer W believes that some of its employees may not be as productive when working remotely, employees work their normal working hours. 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. Consequently, each of them is eligible to receive the employee retention credit only for wages paid to an employee who does not provide services due to (a total or partial suspension of operations by government order) or (a) a significant decrease in gross income. 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.
Wages paid to related persons, as defined in section 51 (i) (of the Internal Revenue Code (the Code), are not considered for the purposes of the employee retention credit. Also, remember that if a customer has applied for a PPP loan and will be forgiven for it, they can now be eligible for the employee retention credit with certain salaries. When the employee retention credit (ERC) related to COVID-19 was originally enacted in the CARES Act, Congress made a significant difference between treating an eligible large or small qualifying employer, large or small. Reasonable methods include the method (or methods) that the employer uses to measure the right of exempt employees to intermittent or reduced leave under the Family and Medical Leave Act, or the method that it uses to measure the right of exempt employees to paid vacation and the use of such leave according to the employer's standard practices.
For an employee who does not have a fixed working schedule, the hours during which the employee does not provide services can be determined using any reasonable method. These salaries are paid in accordance with existing leave policies, which represent benefits accrued over a previous period in which employees provided services, and are not wages paid for the time when employees did not provide services. For employees who are not providing services due to the closure of their branch office, but who receive 50 percent of their normal hourly wage, employer T can treat the wages paid as qualifying wages for the purposes of the employee retention credit. The minister's salary and stewardship allowance do not constitute salaries within the meaning of section 3121 (a) of the Code and, therefore, are not qualifying salaries for the purposes of the employee retention credit.
For more information on the employee retention credit, visit Cherry Bekaert's ERC Guidance Center or contact Martin Karamon. .
