Employers can still apply for the ERTC retroactively by filing Form 941-X, the employer's adjusted quarterly federal tax return or refund request, for each quarter in which they have paid the qualifying wages. Employers can file Form 941-X up to three years after the original payroll tax due date, which is normally April 15.A qualifying employer requests the ERC on the employer's federal employment tax returns on IRS Form 941.Section 206 of the Taxpayer Certitude and Disaster Tax Relief Act (the Act) allows an eligible employer to apply for the employee retention credit (ERC), even if the employer has received a paycheck protection program (PPP) loan. If an employer determines that they were an eligible employer during a last quarter in which they did not apply for the ERC, they can apply for the credit retroactively by filing an adjusted quarterly federal tax return from the employer or a refund request on the IRS Form 941-X. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) originally established the ERC to encourage companies to keep employees on payroll during the pandemic.
An eligible employer generally makes this choice by not asking the ERC for those qualified wages on their federal employment tax return. The Relief Act increased the operating employee threshold from 100 full-time employees to 500 full-time employees. If the employer's share of the Social Security tax was paid, the non-refundable part of the ERC is refundable. The IRS has published a brief guide to this provision, advising employers to modify the applicable employment tax returns for each quarter.
Generally, the beneficiary of a PPP loan can now apply for the ERC for qualified wages paid to employees, but the wages for which the employer is requesting the ERC must then be excluded from the payroll costs that qualify for PPP loan forgiveness. Otherwise, ADP would pay the IRS in advance and request the same credit from ADP, resulting in insufficient tax payments and significant fines and interest from the IRS. Eligible employers must amend applicable employment tax returns to apply for the ERC and request a refund. All advances requested through the IRS Form 7200 must be reconciled with the ERC and any other credit for which the employer is eligible on IRS Form 941, the employer's quarterly federal tax return.
Originally, the CARES Act provided that, for employers with more than 100 employees, the credit was only available for wages paid to employees for which services were not provided (i). The ERC is fully refundable, since the eligible employer can receive a refund if the amount of the ERC exceeds the applicable labor taxes due by the eligible employer. The term “non-refundable” is an inappropriate name if the taxpayer did not apply for the ERC and instead paid the employer's portion of the Social Security tax through federal tax deposits. The employee retention credit under the CARES Act encourages companies to keep employees on their payroll.