What is the Employee Retention Credit?
The Employee Retention Tax Credit (ERC) is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees in 2020. Originally, eligible wages were those paid from March 13, 2020 through December 31, 2020; however, as a result of the new legislation, eligible employers can now claim a 70% refundable tax credit (quarterly) for qualified wages they pay to employees from January 1, 2021 through December 31, 2021.
Eligible employers can access the ERC for the 2nd and future quarters of 2021 prior to filing their employment tax returns by reducing federal employment tax deposits. For 2021, small employers (an employer with an average of 500 or fewer full-time employees in 2019) may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19, after reducing deposits. In 2021, advances are not available for employers larger than 500 employees.
What is the maximum you can receive with the
Employee Retention Credit?
As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees from January 1, 2021 through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter in 2021.
How can Corporate Payroll Services help?
If the employer determines eligibility for the current quarter, then Corporate Payroll Services will do the following each pay period:
- Calculate the credit for each payroll check date based on qualified wages paid to eligible employees;
- Provide a direct credit to the eligible employer by reducing the 941 federal employment tax deposits, which is typically due to be paid to the IRS immediately;
- Report the excess amount on IRS Form 7200;
- File Form 7200 with the IRS on the employer’s behalf.
- The IRS will process Form 7200 and mail a check to the employer.
(Note: Once Form 7200 is filed, the IRS does not offer us the ability to track the status of your refund)
If the employer determines eligibility for 2020 OR for a previous quarter, then Corporate Payroll Services will do the following:
- Calculate the credit based on qualified wages paid to eligible employees; and
- File amended returns for each quarter that qualifies for ERC;
The IRS will process the amended return and issue a refund to the eligible employer.
How to Get Started
If you wish to track wages eligible for the above credits, please contact your payroll specialist to obtain an authorization form authorizing us to calculate the credits and transmit Form 7200 to the IRS. This must be done before your payroll is processed, or payrolls would have to be voided and reissued resulting in some additional charges.
If you have any questions regarding Form 7200 or the filing process, please reach out to your payroll specialist.
If you are not a current payroll client with us, contact us today or fill out our request form to get started.
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