Where to Report Employee Retention Credit on 1120s
The Employee Retention Credit (ERC) is a tax credit introduced by the CARES Act in response to the COVID-19 pandemic. It provides eligible employers with a credit for retaining employees during periods of economic uncertainty. If you are a small business filing Form 1120s, the following information will help you understand where to report the ERC and address some frequently asked questions.
1. Where is the Employee Retention Credit reported on Form 1120s?
The ERC is reported on Form 941, Employer’s Quarterly Federal Tax Return. However, for eligible small businesses filing Form 1120s, they should report the credit on Form 3800, General Business Credit, which is attached to their tax return.
2. Can I claim the Employee Retention Credit and other COVID-19-related tax credits?
Yes, you can claim multiple tax credits, such as the ERC, Paycheck Protection Program (PPP) loan forgiveness, and the Families First Coronavirus Response Act (FFCRA) credits. However, you cannot claim the ERC for wages that were used to receive forgiveness for a PPP loan or wages for which you have received the FFCRA credits.
3. How do I calculate the Employee Retention Credit?
The ERC is calculated as 50% of qualified wages up to $10,000 per employee for the entire year 2020. For 2021, the credit increased to 70% of qualified wages up to $10,000 per employee per quarter.
4. Can I claim the Employee Retention Credit for all my employees?
The eligibility criteria for the ERC depend on the size of your business and the impact of the COVID-19 pandemic on your operations. Generally, eligible employers are those whose operations were fully or partially suspended due to government orders or had a significant decline in gross receipts.
5. Is the Employee Retention Credit refundable?
Yes, the ERC is a refundable tax credit. If the credit exceeds your tax liability, you can receive the excess as a refund.
6. Can I claim the Employee Retention Credit for wages paid to myself as an S-corporation shareholder?
No, you cannot claim the ERC for wages paid to yourself as an S-corporation shareholder. The credit is not available for wages paid to majority owners or their family members.
7. How do I report the Employee Retention Credit on Form 3800?
To report the ERC on Form 3800, you should complete Part III, Section B, Line 13a. Enter the total qualified wages and health plan expenses for each quarter separately. Then, transfer the total credit to Form 1120s, Schedule K, Line 13d.
In conclusion, if you are a small business filing Form 1120s and are eligible for the Employee Retention Credit, you should report it on Form 3800, attached to your tax return. Make sure to follow the guidelines provided by the IRS and consult with a tax professional to ensure accurate reporting. The ERC can provide substantial financial relief to eligible businesses during these challenging times.