Employee Retention Credit’s Non-refundable Tax Credit

A 70% tax credit is one of the benefits of the Employee Retention Credit (ERC). The credit pays up to $10,000 in salaries earned to each employee for each quarter in 2021. The federal government’s COVID-19 assistance package is both a blessing and a curse.

Government and IRS interactions are difficult enough without adding the program’s ever-changing regulations and deadlines. Due to this, a lot of firms are unsure about their eligibility for ERC. Particularly the nonrefundable half of the tax credit. Many companies aren’t even aware that they can submit an application for the ERC in 2022.

We’re going to make the ERC more stressful. But we’ll also arm you with the knowledge to manage it. Are you aware that the employee retention tax credit program has a non-refundable portion? If you’re thinking, “Huh? ” keep reading to find out everything there is to know.

Do Companies Repay Employee Retention Credits From COVID Relief?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is what gave rise to the ERC. Its objective is to keep people employed and receive compensation.

For qualified employers, the tax credits provided by this scheme are entirely refundable. Employers had to continue to pay their employees to be eligible.

The employer’s portion of the social security tax is the non-refundable portion. The tax on wages paid in the subsequent quarter after the first share, after a reduction by credits claimed on line 11a of Form 941, is subject to this.

The non-refundable portion of the credit is accounted for on line 16 of Form 941, Form 941-SS, or Schedule B. Family leave and sick pay earnings are covered for a full quarter. It includes the portion of Medicare tax and health insurance costs paid by the employer that is related to such wages.

A Nonrefundable Credit Is What?

A nonrefundable credit cannot be used to boost your refund or produce a tax refund that did not previously exist. Your refund or savings cannot be greater than the amount of taxes owed.

You will get a refund for the difference if a refundable credit exceeds the amount of tax you owe. You forfeit the excess if the credit is nonrefundable and more than the taxes you owe.

6.4% of salaries constitute the non-refundable element of the ERC. This is the Social Security Tax owed by the employer.

Form 941

The IRS released a new version of Form 941 in March 2022 as a result of the Employee Retention Credit’s expiration. There are still lines for tax credit claims on the Employer’s Quarterly Federal Tax Return.

They pertain to employee qualified leave in 2021 and qualified leave wages paid in 2022. During the first quarter of 2022, some companies might be eligible to claim the COBRA premium assistance credit.

The instructions on how to calculate the ERC no longer include worksheets. The salaries for 2022 are not qualified for that credit.

If you overreported taxes on earlier Form 941 filings, you may be able to claim the ERC. Form 941-X is used for this.

The non-refundable ERC part for the first and second quarters of 2021 is 6.4% of the wages. This is equivalent to the Social Security tax paid by the employer.

If the company did not submit an ERC claim, the phrase “nonrefundable” is false. The non-refundable portion of the employee retention tax credit is recoverable if the employer paid their portion of Social Security tax through federal deposits. Line 18 of the Form 941-X instructions explains this.

Form 941-X Modification for The ERC

When there are mistakes in the original form, businesses must always make amendments. This could involve inaccurate data or calculations. To prevent any penalties or fines, it’s crucial to fix these errors as quickly as you can.

Businesses may need to modify their paperwork for some credits, such as the tax credit for employee retention. Businesses must submit a separate Form 941-X for each Form 941 they need to alter to claim this credit. Also required is a date on which they became aware that the initial form was inaccurate.

In Conclusion

Even though the Employee Retention Credit scheme expired on September 30, 2021, firms can ask for a review of their tax payments up to three years later. Up until December 31, 2021, new enterprises could receive credits.

Your Part Time Accountant specializes in assisting companies to establish their eligibility to submit an ERC or Paycheck Protection Program application (PPP). We can also help ERC-qualified businesses with quarterly Form 941 amendments.

Get your questions about the nonrefundable portion of the employee retention credit answered by contacting Your Part Time Accountant. And learn how we can work with your company to make sure you are collecting the full credit amount.