The employee retention credit under the CARES Act is a refundable tax credit that encourages companies to keep their employees on payroll. It is designed to help employers cover the cost of wages paid during the pandemic. The credit is distributed among members of an aggregate group based on their proportional share of qualifying salaries that give rise to the credit. Organizations described in section 501(c) of the Internal Revenue Code (the “Code”) and exempt from taxes under section 501(a) of the Code may be eligible employers for the purposes of the employee retention credit if they meet the requirements.
Tribal governments or tribal entities that carry out a trade or business may also be eligible employers if they meet the requirements. Qualified wages are wages as defined in section 3121(a) of the Code for purposes of the Federal Insurance Contributions Act (“FICA”) tax purposes. Under section 3121(b) of the Code, wage payments by employers in the U. S.
are considered qualified wages. Consequently, eligible employers include U. employers and territories that pay qualifying salaries and that otherwise meet the requirements for obtaining credit. The amount of the credit is calculated based on a percentage of “qualified wages,” including attributable qualifying health plan expenses that an eligible employer pays to employees. Employers can use the employee retention credit score to recover qualifying income, although the definition of qualifying salary varies depending on the size of the company and the number of employees. Domestic employers are not considered to operate a trade or business and are therefore not eligible for the employee retention credit with respect to their domestic employees.
The federal government, the governments of any state or political subdivision of the same state, and any agency or agency of those governments are not eligible employers and are not entitled to receive the employee retention credit. Eligible employers will declare their total qualified wages for the purpose of the employee retention credit for each calendar quarter on their federal employment tax returns, usually Form 941, the employer's quarterly federal tax return. If withheld payroll tax deposits were not sufficient to cover the expected credit amount, employers can file Form 7200 (prepayment of employer credits due to COVID-19) to request prepayment of the remaining amount. For these circumstances, a third payer files a payroll tax return (such as Form 94) for wages paid to employees with his name and EIN, and a common-law employer files a payroll tax return for wages paid directly to employees under his own name and EIN. Qualified income, which includes specific health plan charges, disbursed during any qualifying quarter in which a company ceased operations, qualifies for the employee retention credit. Employers who file an annual payroll tax return can file an amended return using Form 944-X (employer's adjusted annual federal tax return or request for reimbursement) or Form 943-X (adjusted federal employer tax return for agricultural employees or request for reimbursement) to apply for credits. The most recent employee retention credit standards are nearly identical to the original IRS requirements. Through this program, billions of dollars in economic stimulus are available but hundreds of millions of business owners will let most of this money go unclaimed.
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