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. 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. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. The IRS originally said that none of those expenses would qualify for the credit, but it revised its FAQs to allow employers to apply for the credit for health care expenses regardless of whether the employee is paid qualifying wages.
For these employers, the amount of the credit must be distributed among the members of the aggregate group based on each member's proportional share of the qualifying salaries that give rise to the credit. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity. This law increased the employee limit to 500 to determine what salaries are applicable to the credit. Large employers are allowed a partial credit for salaries paid to employees who continue to work fewer hours.
The employee retention credit under the CARES Act encourages companies to keep employees on their payroll. The IRS recently clarified its conflicting statements about exactly what salaries are considered “qualifying salaries” that qualify for the employee retention credit. If an employee participates in more than one plan, the expenses allocated to each plan are added up for that employee. If an eligible employer did not apply for the credit in the last quarter, they can file a request for reimbursement and make an interest-free adjustment for a previous quarter to apply for the credit.
The amount included for credit purposes is the amount that goes to employees' wage hours. 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. 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. The credit is allowed against the employer's share of social security taxes on wages paid to all employees.
