Do you pay taxes on ertc credits?

Herb Zolla09/04/232 minutes 39, seconds read0 Comment

Although the ERC is not considered taxable income, under Section 280C of the IRC, tax credits for employers create a reduction in wages by the amount of the credit. Small employers receive improved benefits under the ERC regime. Specifically, for as long as they are an eligible employer, they may include wages paid to all employees. Large employers can only include salaries paid to employees for not providing services.

Technically, yes, but only salaries that meet the requirements are paid while the mandates are in effect and have a more than nominal impact on the company. Instead, the employer must reduce wage deductions on their income tax return for the tax year in which they are an eligible employer for the purposes of the ERC. The employee retention credit is a fully refundable tax credit that eligible employers request against certain employment taxes. It's not a loan and it doesn't have to be repaid.

For most taxpayers, the refundable credit exceeds the payroll taxes paid during a credit-building period. While an employer cannot include wages financed with a PPP loan in the ERC calculation, PPP funds only apply to eight or ten weeks of wage expenses. ERC eligibility periods are longer. PPP loans can also finance non-wage expenses.

No, but, if possible, assign the maximum allowable non-wage costs available to the PPP that is being forgiven. It is likely that the fund's sister and sister holding companies may be treated as separate operations or businesses when considering the status of eligible employers, since the Fund Owner of the Portfolio Companies is not an active activity or enterprise (rather, a passive investment vehicle). Cherry Bekaert LLP and Cherry Bekaert Advisory LLC practice in an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable laws, regulations and professional standards. Cherry Bekaert LLP is an independent licensed CPA firm that provides certification services to its clients, and Cherry Bekaert Advisory LLC and its subsidiary entities provide tax and business advisory services to its clients.

Cherry Bekaert Advisory LLC and its subsidiary entities are not licensed CPA firms. The entities that belong to the Cherry Bekaert brand are independently owned and are not responsible for the services provided by any other entity that provides services under the Cherry Bekaert brand. Our use of the terms “our company” and “we” and terms of similar importance indicate the alternative practice structure of Cherry Bekaert LLP and Cherry Bekaert Advisory LLC. The ERC refund is not taxable when received; however, wages equal to the amount of the ERC are subject to cost-relief rules.

The ERTC is available to companies of all sizes; there is no employee limit, although it's easier for small businesses to take advantage of it. If you haven't yet applied for PPP loan forgiveness, consider applying non-payroll expenses to them so you can maximize the salaries you can use to apply for your ERTC. A company may be eligible for the ERTC under this provision, even if its revenues increased during the applicable quarter. The IRS has also clarified that tips can be considered qualified wages for the purposes of the ERTC, as long as they are Medicare salaries.

References

Next postWho is eligible for the employee retention credit?

New Posts

Is it too late to claim the erc credit?

Herb Zolla1 minute 24, seconds read

Employers can still apply for the ERTC retroactively by filing Form 941-X, Employer's Adjusted Federal Tax Return or Refund Request, for each quarter in which they have paid qualifying wages. Employers can file Form 941-X up to three years after the original payroll tax due date, which is normally April 15.Originally, employers with 100 or more employees were prohibited from applying for credit with respect to wages paid to employees who worked (in other words, only wages paid to employees who did not work or who worked with reduced hours were counted).

Can you retroactively apply for employee retention credit?

Herb Zolla2 minutes 27, seconds read

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.

Is it too late to apply for erc credit?

Herb Zolla0 minutes 32, seconds read

The ERC amounts claimed must be declared as a reduction in wages and salaries paid during the income tax year. The ERC can be applied for retroactively on an amended 941-X payroll tax return, if the statute of limitations is still open.

How does the employee retention tax credit work?

Herb Zolla2 minutes 47, seconds read

The employee retention credit under the CARES Act encourages companies to keep employees on their payroll. Through this filing, companies will declare their income, as well as the Social Security and Medicare taxes that were withheld from employee paychecks.