Q5: How do I apply for ERC?
A: Report total qualified wages and related health insurance costs for each quarter on Form 941 with estimated quarterly taxes. You don’t have to wait until your quarterly filing; you can use Form 7200 at any time to request an advance of the tax credit.
Q6: What if my credit is larger than the tax that’s due?
A: Similar to other overpayments of tax, you would receive a refund from the IRS equal to the difference in amounts after you file Form 941 with your estimated quarterly taxes.
Q7: Can I claim ERC in one quarter but not another?
A: Yes. It’s not a one-time election and can be claimed in any quarter that your business experienced a significant decline in gross receipts (compared to 2019) or had to shut down partially or completely.
Q8: Are healthcare expenses considered qualifying wages?
A: Yes. You can include the cost of employer-paid health care insurance expenses in qualified wages, as well as the pre-tax employee contributions. Employees’ after-tax contributions do not count. If you have more than one health plan; for example, a group health plan and FSA, calculate health care costs separately per plan, then add up the total costs per employee.
Q9: I offer a fully insured group health plan. How do I calculate those wages?
A: According to the IRS, you can use any reasonable method to allocate plan expenses. Options are either the COBRA applicable premium for the employee, which you can get from the insurer; one average premium rate for all employees; or a similar method. There are other considerations; call us to talk about your specific situation.
Q10: Can I claim ERC if I had other relief funding?
A: It depends. You cannot claim the ERC if you received PPP funds.. You are also not permitted to claim ERC for the same wages as section 45S of IRC or if you’re already claimed a Work Opportunity Tax Credit for the employee. However, you are permitted to claim ERC and FFCRA, as long as the credit is for different wages.
Nine FAQs on the FFCRA Tax Credits
Since the end of March, most of the attention on business relief has been on the CARES Act. Although the CARES Act was the more robust of the two pieces of legislation, FFCRA still contained important tax credits that businesses can utilize with the ERC. To qualify for FFCRA tax credits, businesses must have fewer than 500 employees.
The tax credits under FFCRA cover 100 percent of up to ten days of qualified sick leave wages per employee, and up to ten weeks of qualified family leave wages, including health plan expenses paid for by the employer and the employer portion of Medicare taxes.
FFCRA tax credits reimburse employers for providing paid sick leave and expanded medical leave for employees who are off work related to COVID-19 from April 1, 2020 through December 31, 2020.
Q1: What constitutes qualified wages under FFCRA?
A: There are two types of qualified wages available: qualified sick leave wages and qualified family leave wages.
Qualified sick leave wages apply to the employee if he or she is unable to work or telework because of coronavirus. Sick leave wages apply in the following scenarios:
- The employee has symptoms of coronavirus and is awaiting test results,
- The employee must care for a family member who has symptoms of coronavirus, or
- The employee needs to care for a child whose school or daycare is closed or if the childcare provider is unavailable due to coronavirus.
Sick leave wages are the greater of the employee’s regular pay rate, national minimum wage, or local minimum wage, up to 80 hours, and $511/day and $5,110 total, per employee.
Qualified family leave wages apply if the employee is unable to work or telework due to his or her child’s school or daycare being closed because of coronavirus. Family leave wages are the same as above, except employers are only required to pay 2/3 the normal rate, up to 10 weeks, for a maximum of $200/day and $10,000 total for the calendar year, per employee.
Part-time employees’ paid leave is prorated depending on their average weekly hours.
Q2: How do I calculate the average number of hours worked for part-time employees?
A: You have a few options depending on your situation. The amount of paid leave is equal to the average number of hours worked in a two-week period. You can either:
- Add up the number of hours the employee is normally scheduled to work,
- Use a six-month average to calculate average daily hours,
- Use the number of hours agreed upon when the employee was hired, if he or she has been employed for less than six months, or
- Calculate the average number of hours the employee was scheduled to work over the entire term of employment.
Q3: How do I claim FFCRA tax credits?
A: Report the total qualified leave wages, plus qualified health plan expenses and employer’s share of Medicare tax on such wages, on Form 941 for each quarter that applies. The form has been modified and includes a line for the dollar value of the credit.
Q4: How do I calculate FFCRA tax credits?
A: The following table is an example of calculating the ERC starting April 1, 2020, for one full-time employee making $15/hr.