How to Record Employee Retention Credit in QuickBooks Desktop
The Employee Retention Credit (ERC) is a tax credit provided to businesses that have been affected by the COVID-19 pandemic. It is designed to encourage businesses to retain their employees despite financial challenges. If you are eligible for this credit, it is important to know how to record it properly in your QuickBooks Desktop software. Here is a step-by-step guide to help you with the process.
Step 1: Set up the Employee Retention Credit item
Go to Lists > Payroll Item List > Payroll Item > New > EZ Setup > Next > Select ‘Sick Pay’ > Next > Enter a name for the item (e.g., Employee Retention Credit) > Next > Select ‘Tax Tracking Type’ as None > Next > Finish.
Step 2: Create a new payroll item for the ERC
Go to Lists > Payroll Item List > Payroll Item > New > Custom Setup > Next > Select ‘Wage’ > Next > Enter a name for the item (e.g., ERC) > Next > Select ‘Tax Tracking Type’ as None > Next > Finish.
Step 3: Set up the payroll item for the ERC on the employee’s record
Go to Employees > Employee Center > Double-click on the employee’s name > Payroll Info tab > Select ‘Employee Retention Credit’ from the Item Name dropdown menu > Enter the amount of the credit > OK.
Step 4: Process payroll
Go to Employees > Pay Employees > Scheduled Payroll > Select the employee > Enter hours and other relevant information > Click on the ‘Item Name’ column > Select ‘Employee Retention Credit’ > Enter the amount of the credit > Continue > Review > Submit.
Step 5: Record the payroll liability adjustment
Go to Employees > Payroll Taxes and Liabilities > Adjust Payroll Liabilities > Taxes and Liabilities > Enter the date of the paycheck > Enter the amount of the credit > Select the liability account associated with the payroll tax > Enter a memo > OK.
Frequently Asked Questions:
Q1: Do I need to repay the Employee Retention Credit?
A1: No, the ERC does not need to be repaid if you meet the eligibility criteria.
Q2: Can I claim the ERC for all my employees?
A2: The credit is available for eligible employees who were not able to work due to COVID-19-related reasons.
Q3: Can I claim the ERC if I received a Paycheck Protection Program loan?
A3: Yes, you can claim the ERC even if you received a PPP loan, but not for the same wages.
Q4: Can I claim the ERC for wages already paid in 2020?
A4: Yes, you can retroactively claim the credit for wages paid in 2020.
Q5: How do I calculate the amount of the credit?
A5: The credit is equal to 50% of qualified wages paid to eligible employees, up to a maximum of $10,000 per employee.
Q6: Can I claim the ERC for self-employed individuals?
A6: No, self-employed individuals are not eligible for the ERC.
Q7: How do I report the ERC on my tax return?
A7: You will report the ERC on Form 941, Employer’s Quarterly Federal Tax Return.
Recording the Employee Retention Credit accurately in your QuickBooks Desktop software is crucial to ensure compliance with tax regulations and maximize your benefits. By following the step-by-step guide and understanding the FAQs, you can confidently navigate this process and take advantage of this valuable tax credit.