It is now clear that, according to the most recent IRS regulations, the employee retention credit should be reported on Form 1120-S, line 13g, Annex K and Form 5884. Any eligible employer can choose not to take advantage of the employee retention credit for any given quarter by not requesting the credit on their payroll tax return. The title of Form 5884-A is actually 'Employee Retention Credit for Employers Affected by Qualified Disasters'. The client employer is responsible for avoiding a “double benefit” with respect to the employee retention credit and the credit under section 45S of the Internal Revenue Code. If an eligible employer decides not to apply for the employee retention credit in a particular quarter, they are not prohibited from requesting the credit in a later quarter for qualifying wages paid in that next quarter, as long as they meet the requirements to apply for the credit. If an eligible employer uses a CPEO or a 3504 agent to declare their federal payroll taxes on an aggregated Form 941, the CPEO agent or 3504 will declare the employee retention credit on their aggregated Form 941 and in Annex R, Assignment Program for those who file the Aggregate Form 941, which has already been filed.
If a third-party payer applies for the employee retention credit on behalf of the client employer, they can rely on information from the client employer about their eligibility to apply for the employee retention credit, and the client employer must maintain all records that prove their eligibility to receive the employee retention credit. If a third-party payer applies for the employee retention credit on behalf of the client employer, they must, at the request of the IRS, be able to obtain from the customer and provide the IRS with records that prove their eligibility to receive the employee retention credit. The eligible employer must provide a copy of any Form 7200 that they submitted as an advance to the PEO so that the PEO can correctly declare the employee retention credit on Form 941. Consequently, a similar denial of deduction would apply under the employee retention credit, so that the employer's total deductions would be reduced by the amount of the credit as a result of this denial rule. Originally, according to CARES Act provisions, for employers with more than 100 employees, the credit was only available for salaries paid to employees for whom services were not provided (that is, an eligible employer can file their own Form 7200, Prepayment of Employer Credits Due to COVID-19), to apply for early credit. The client employer cannot use salaries that were used to apply for the employee retention credit and declared by a third-party payer on behalf of them to apply for 45S credit on their income tax return. If an eligible employer uses a reporting agent to file Form 941, their quarterly federal tax return, then their reporting agent must reflect the employee retention credit on Form 941 that is filed on behalf of them. Also reduce amounts reported in lines 7 and 8 in non-refundable and refundable parts of new employee retention credits under CARES Act which is requested in corporation's payroll tax returns.
The possibility of deferring deposit and payment of employer's share of Social Security taxes under section 2302 of CARES Act applies to all employers including employers entitled to paid vacation credits and employee retention credits.