As an employer, you may be eligible for a refundable employee retention credit (ERC) based on the qualified wages you pay to your employees. This credit is equivalent to half of the employee income and can be used for various payroll taxes. To help employers determine if they qualify for the credit, Thomson Reuters has updated the employee retention credit tool. The essence of the employee retention credit is to encourage employers to keep their employees on the payroll, even if they are unable to provide their normal services due to a closure of their branch office or a sharp reduction in total income.
The credit is allowed against the employer's share of social security taxes (6.2% rate) and the railroad retirement tax on all salaries and compensation paid during the quarter. The 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. For example, if an employee is receiving 50 percent of their normal hourly wage, the employer may treat these wages as qualifying wages for the purposes of the employee retention credit. However, ministers' 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.
Similarly, 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 government is allowing billions of dollars in economic stimulus through this program, but hundreds of millions of business owners will let most of this money go unclaimed. To optimize employee retention credit without facing any complexity, employers need to understand how to apply for it and determine which employers are eligible. For more information and examples on how to apply for the refundable employee retention credit and determine maximum amount of an eligible employer's employee retention credit, see Determining which employers are eligible to apply for the employee retention credit and How to apply for the employee retention credit.
