Eligible employers are entitled to an employee retention credit based on the qualified wages paid to their employees. 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 qualified salaries for the purposes of the employee retention credit. The employee retention credit (ERC) is a refundable tax credit equivalent to half of an employer's employee income that can be used for various payroll taxes. For more information and examples, see Determining the maximum amount of an eligible employer's employee retention credit.
For more information on how to apply for the refundable employee retention credit, see How to apply for the employee retention credit. Because of the complexities of eligibility for the employee retention credit, Thomson Reuters has updated the employee retention credit tool to help all employers determine if they qualify for the credit. 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 may treat the wages paid as qualifying wages for the purposes of the employee retention credit. Employers will only be eligible for credit for qualified wages and earned wages during a period in which operations were suspended due to an outbreak of illness or a sharp reduction in total income, and the amount could often exceed what the employee would have earned without the pandemic.
The amounts paid to authorized real estate agents of real estate brokerage firm Y do not constitute wages within the meaning of section 3121 (a) of the Code and, therefore, are not qualified salaries for the purposes of the employee retention credit. The essence of the employee retention credit is to encourage employers to keep their employees on the payroll. Employer U continues to pay salaries to employees at their normal rates, even though employees are unable to provide their normal services. For more information, see Determining which employers are eligible to apply for the employee retention credit.
The credit was allowed against the employer's share of social security taxes (6.2% rate) and the railroad retirement tax on all salaries and compensation paid to all employees during the quarter. Through the employee retention tax credit program, the government is allowing billions of dollars in economic stimulus, but hundreds of millions of business owners will let most of this money go unclaimed. The employee retention credit is allowed on qualified wages paid to employees; an amount must constitute a salary within the meaning of section 3121 (a) of the Internal Revenue Code (the Code) (or must constitute qualified health plan expenses attributable to those salaries) to fall within the definition of a qualifying wage. The real question on every employer's mind is how best to optimize employee retention credit without facing any complexity.
