The Employee Retention Credit (ERC) program was a refundable tax credit that small businesses could apply for during the COVID-19 pandemic. Eligible employers, including hospitals, universities, colleges and 501 (c) organizations, could take advantage of this credit after the United States Rescue Plan Act was enacted. The ERC program has now ended, but it doesn't affect companies that apply for it retroactively. The ERC encourages companies to keep employees on their payroll by providing a credit against 50 percent of the qualifying wages paid. This includes borrowers from the Paycheck Protection Program (PPP) who originally weren't eligible to apply for this tax credit.
It's important to understand the IRS notice to learn how to apply the changes to Form 941-X to apply for your credit. Your company could still be eligible to receive the ERC, even if you only had a partial suspension order issued by the government (local, state, or federal). If you delayed payroll taxes before receiving the ERC in the fourth quarter, you must determine any underpaid tax amounts and prepare to resolve those problems. At the end of that same calendar quarter, the amount of credits will be reconciled on your Form 941 for your federal payroll taxes. The ERC can only be charged to salaries that were not forgiven or that are expected to be under the PPP. Similarly, if the employee is included in the work opportunity tax credit, they cannot be withheld in the employee retention credit.
The IRS is not giving money away; this means that the credit served as an overpayment and would be refunded to you after subtracting your share of those taxes.