CLAIMING THE EMPLOYEE RETENTION CREDIT

The CARES Act implemented several relief options to businesses. The Employee Retention Credit (ERC) was one of these options made available to help employers keep employees on payroll. The ERC is a fully refundable credit available to all employers who experienced a significant decline in gross receipts due to COVID-19, including tax-exempt organizations. Two exceptions apply: the employer cannot be a government entity and the employer cannot have received a Paycheck Protection Program loan.

The credit is equal to 50% of up to $10,000 of qualified wages paid to an employee between March 12, 2020 and January 1, 2021, for a maximum credit of $5,000 per employee. The ERC may be claimed in conjunction with the tax credit for qualified leave wages but must exclude the amount of qualified leave wages. Claiming the ERC can be done on quarterly Form 941 against social security taxes. An advance payment request for the credit may be made using Form 7200 if the amount of the credit exceeds the taxes paid. Additionally, if the ERC from eligible first and second quarter wages was not claimed on the second quarter Form 941, employers may still claim the credit by filing a Form 941-X for the adjustment.