How do employers claim an Employee Retention Tax Credit (ERTC)? What are “gross receipts” when it comes to the employee retention credit? MP’s HR services team addresses the top questions and provides answers about ERTC eligibility. Get advice from HR providers on how to take advantage of this substantial pandemic assistance. MP’s HR services team address the top 13 questions about how to claim the ERTC.
ERTC Terminology and Categories
- Q: What is the “controlled group” revenue measurement?
A: For the ERTC, a “controlled group” is a cluster of corporations in which there is deemed or actual ownership of 50% or more shares (by vote or value). For ERTC purposes, the IRS uses the same test as it does for other applications, such as the Affordable Care Act (ACA). Whenever the same owner, group of owners or corporations own 50% or more of multiple businesses, those businesses are considered a controlled group and must be aggregated and counted as one for employee-count purposes.
- Q: Do PPP funds count towards gross receipts when calculating gross receipts decline?
A: No they do not.
- Q: When calculating gross receipts, will employers follow the accounting method for tax return reporting?
A: Yes, small businesses allowed to use the cash method may do so, others must use the accrual method
- Q: Are gift card sales considered “receipts?”
A: Yes, gross receipts can refer to any revenue that the business has accrued over 2020 and 2021.
- Q: Do employers have to refile each quarter’s 941 for 2020 to claim ERTC?
A: Yes, employers must amend the applicable 941 form(s) for the quarters that the qualified wages were paid in.
- Q: Can employers claim the ERTC for 2020 retroactively?
A: Yes, they can claim the ERTC for 2020 retroactively. There are claimed by filing a 941-x for the respective quarter to amend the relevant payroll tax filing.
- Q: How do employers claim an ERTC? Through a bank, like PPP loans?
A: No, the ERTC is a tax credit. Employers claim it via their payroll tax filings. They can claim 2020 retroactively, too– even if they already filed their 2020 taxes.
- Q: How and where do employers report ERTC on their K-1 in 2020 for 1120-S? What box do they use?
A: It would reduce the amounts on lines 7 and 8 of the form.
- Q: Can an organization claim an ERTC if they have a professional employer organization (PEO)?
A: Yes. Because of the way 941 filing works with a PEO, a Schedule R must be utilized to claim the credit.
ERTC and Quarters
- Q: Can payroll expenses over the $100K applied towards PPP forgiveness be claimed as ERTC, even if the periods overlap?
A: Yes, however employers should be extremely cautious with overlapping pay periods. They should ensure that they have solid documentation to back up calculations. It is preferable to max out the credit using other pay periods if possible.
- Q: Can employers use revenue decline to qualify for the ERTC for some quarters, then a suspension of business for other quarters?
A: Yes, employers can use a combination to qualify for the ERTC.
- Q: Is the ERTC a cash payment back for taxes already paid in?
A: It is a refundable tax credit. In cases where it is being claimed after the applicable taxes have already been paid, then employers will receive a check from the IRS. Employers will also have the option of reducing their tax liability by claiming the credit each pay period.
- Q: In 2020, employers were allowed to hold off on paying their social security taxes without penalty until a later date in 2021. Does the ERTC cancel out the repayment of employer’s social security?
A: No, claiming an ERTC doesn’t cancel out the repayment of the employer’s social security taxes. However, an ERTC can be used to reduce or cover the amount of social security taxes that an employer owes.
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