ERC Credit Tax Treatment

The Employee Retention Credit (ERC) is a relief first introduced by the U.S. government as an effort for employees uprooted from financial security during the pandemic. Many businesses have taken advantage of this excellent government program. One important consideration is ERC credit tax treatment. Don’t be caught off guard when claiming the tax credit.

Employee Retention Credit Overview

The ERC was initially established as a part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act in 2020. Since then, it has been amended multiple times. 

The purpose of the Employee Retention Credit has always been to encourage businesses to keep their employees, despite the effects of the pandemic that have lasted to date. This is to ensure that employee wages are maintained, regardless of the conditions of the economy. 

This credit provides financial security to employees and businesses that have suffered the effects of the pandemic. The help is provided in terms of employment taxes. In some cases, eligible businesses can get these taxes compensated by the government. 

How Does ERC Work?

Here are some things you need to know about Employee Retention Credit:

Not Everyone is Eligible

The ERC isn’t available for all businesses. Although the ERC can be received by profit and non-profit organizations, they must still meet certain criteria. 

When the ERC was first introduced, it was only limited to employers who had experienced either a full or partial suspension of operations due to government orders during the pandemic. They could also avail the ERC by showing a decline in their gross receipts of more than 50% compared to previous quarters. The conditions may have become more lenient, but they still apply. 

The Qualified Wages Consideration

In the case of the ERC, qualified wages are what determine how the credit is calculated. These are the wages paid to eligible employees in a defined period. The conditions also differ depending on different business sizes. 

For example, for employers who have hired an average of more than 500 full-time employees in 2019, qualified wages are considered to be those that were paid to employees during a full or partial suspension of business operations, whereby the employees received the wages regardless. This condition can also include a business experiencing a decline in profits (50%). 

For smaller businesses employing an average of 500 or fewer full-time employees during the pandemic, qualified wages were those wages paid during the pandemic. Regardless of whether the operations were suspended or whether the business was experiencing a decline in gross receipts, the business will still receive the ERC. 

For a small business, all wages are qualified wages. For a large one, only wages paid to employees who did not work are qualified wages. 

The Essentials: The Amount of ERC Tax Credit

This is important to understand to be able to analyze the ERC credit tax treatment. The ERC is usually paid as a percentage of the qualified wages that have been paid to employees during the pandemic (go through the point above to understand which employees qualify). 

According to its recent laws and regulations, the government requires you to vary the credit rate and maximum wages over time. This can be best understood through the IRS guidelines. 

The Tax Credit Overlap

You must be careful with the wages you add to the ERC credit tax treatment. This is because the wages added to the ERC application and being considered for ERC cannot qualify for some other programs. 

It is always important to discuss this with a professional and know everything about the ERC policies and the rules and regulations you must follow. 

The ERC Credit Tax Treatment – Things to Know

The ERC applies to qualified wages that have been paid after March 12, 2020, and before January 1, 2022. You can go through the sections above to understand how qualified wages are applied. Depending on the size of the business, the time frame, and the amount of wages paid, the credit may differ. 

For example, for qualified wages that have been paid between March 12, 2020, and December 31, 2020, 50% of the qualified wages are provided as credit for up to $10,000 per employee. For qualified wages paid between January 1, 2021, and December 31, 2021, 70% are provided as credit for up to $10,000 per employee. 

As of 2021, under the Consolidated Appropriations Act, this has changed, and the qualified wages have been allowed to extend to 2022. Credit rates and maximum wages were also increased for some periods. 

It is possible to claim this credit by reporting it on the Federal Employment Tax Return, such as in Form 941. It is also possible to amend the form later if you realize you have not applied. Moreover, if your credit is greater than your taxes, you can request the IRS to provide you with an advanced refund. From 7200 can be used to request this. 

Treatment of ERC Credit on the Tax Return

Here’s how you would normally record the ERC credit on the tax return;

• Line 11c: On line 11c of form 941, employers are supposed to report the total qualified wages that they paid to their employees in the quarter (these must meet ERC requirements as listed above). 
• Line 11d: On line 11d of the form, employers report the ERC amount for the same periods. According to the size of the business and the employees, this can be calculated through a set percentage. 
• Line 13f: This shows the total deposits and credits for that quarter. This is supposed to be added after adjusting for the ERC. Refunds are possible based on whether the credit is exceeded. 

Haven’t Filed the ERC Credit Yet?

Hiring a professional to manage your Employee Retention Credit filing is essential. Only a professional can understand eligibility requirements and deal with them accordingly. If you want to file it yourself, follow the recent guidelines and be careful. You don’t want to lose the chance to get the ERC this quarter!

If you want to apply for the ERC, it is time to fill out this form and find out more about your ERC qualifications. Apply today!

Have you had difficulties determining if your business qualifies for the Employee Retention Credit or Employee Retention Tax Credit?

Federal Tax Credits ERC is here to answer any of your questions, offer assistance, and even provide a complimentary ERC Qualification Check.

Our team of ERC Experts offers white glove service for tax filing, amending returns, determining eligibility, and how to file for the ERC program.

The time is now to get your Employee Retention Credit while the tax credits are still in place. The program is still available but won’t be around for too much longer.

Get the tax credit your business is entitled to and receive game-changing money back to be used for whatever you choose. Remember, this is not a loan and does not need to be paid back.

Contact Federal Tax Credits ERC now, and let us help you receive your business tax credits.