ERC Credit FAQ #58. If An Amount An Eligible Employer Pays To An Employee Is Exempt From Social Security And Medicare Taxes, Can The Eligible Employer Still Claim The Employee Retention Credit On The Amount Paid To That Employee?

Frequently asked question #58 “If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?” under the Determining Qualified Wages section of FAQs: Employee Retention Credit under the CARES Act, provided by the IRS.gov to help business owners understand the ERC program. Information is below for the question #58 If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?

ERC Credit Frequently Asked Question #58:

Determining Qualified Wages FAQs

58. If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?

No. The Employee Retention Credit is allowed on qualified wages paid to employees; an amount must constitute wages within the meaning of section 3121(a) of the Internal Revenue Code (the “Code”) (or must constitute qualified health plan expenses allocable to such wages) in order to fall within the definition of qualified wages.

Example 1: A church in State X employs an ordained minister; the minister is a common law employee of the church. The governor of State X issues an executive order limiting gatherings of more than 10 people. 

As a result, the church suspends Sunday worship services, but continues to pay the minister’s salary and parsonage allowance. The minister’s salary and parsonage allowance do not constitute wages within the meaning of section 3121(a) of the Code and therefore are not qualified wages for purposes of the Employee Retention Credit.

Example 2: A group of licensed real estate agents at Real Estate Brokerage Firm Y receive substantially all their payments for services directly related to home sales and perform services under a written contract providing that they will not be treated as employees for federal tax purposes. 

Therefore, the licensed real estate agents at Real Estate Brokerage Firm Y are treated as statutory nonemployees under the Code. Amounts paid to the licensed real estate agents at Real Estate Brokerage Firm Y do not constitute wages within the meaning of section 3121(a) of the Code and therefore are not qualified wages for purposes of the Employee Retention Credit.

Example 3: Employer Z offers its employees various benefits that provide for pre-tax salary reduction contributions, including a qualified 401(k) plan, a fully-insured group health plan, a dependent care assistance program satisfying the requirements of section 129 of the Internal Revenue Code (Code), and qualified transportation benefits satisfying the requirements of section 132(f) of the Code. 

Employer Z also makes matching and nonelective contributions to the qualified 401(k) plan and pays the portion of the cost of maintaining the group health plan remaining after the employees’ share.

Employer Z may treat as qualified wages the amounts its employees contribute as pre-tax salary reduction contributions to the qualified 401(k) plan because those amounts are wages within the meaning of section 3121(a) of the Code.

Employer Z may also treat all amounts paid toward maintaining the group health plan (including any employee pre-tax salary reduction contribution) as qualified health plan expenses that may be allocated to wages. 

See “Does the amount of qualified health plan expenses include both the portion of the cost paid by the Eligible Employer and the portion of the cost paid by the employee?”

Employer Z may not treat as qualified wages the amounts Employer Z contributes as matching or nonelective contributions to the qualified 401(k) plan, nor may it treat as qualified wages any employee pre-tax salary reduction contributions toward the dependent care assistance program or qualified transportation benefits. 

These amounts do not constitute wages within the meaning of section 3121(a) of the Code and therefore are not qualified wages for purposes of the Employee Retention Credit.

For more Internal Revenue Service (IRS) Department of the Treasury Employee Retention Credit (ERC) Determining Qualified Wages FAQs, visit the official IRS.gov tax website.

Conclusion and Summary on ERC Credit FAQ #58. If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?

The “If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?” is Frequently Asked Question #58 of many commonly asked questions small business owners are wondering about how to file the Employee Retention Tax Credit (ERTC). The IRS ERC Tax Credit program is a confusing and complex process to determine the correct ERC calculations your business qualifies for. Answers to “If an amount an Eligible Employer pays to an employee is exempt from social security and Medicare taxes, can the Eligible Employer still claim the Employee Retention Credit on the amount paid to that employee?” and filling out form 941-X may change slightly from frequently updated rules and regulations from the IRS. Leave a comment below if you have further questions on ERC Credit FAQ #58.

Help Completing / Filing / Claiming the Employee Retention Credit (ERC)

Receive Up to a $26,000 ERC Credit from the IRS Per Employee

Disaster Loan Advisors can assist your business with the complex and confusing Employee Retention Credit (ERC), Form 941-X, and the Employee Retention Tax Credit (ERTC) program. 

Depending on eligibility, business owners and companies can receive up to $26,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.

The ERC / ERTC Tax Credit Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.

We DO NOT charge a percentage (%) of your ERC Refund like some companies are charging. Some ERC firms out there are charging upwards of 15% to 35% of your ERC refund!

Our professional ERC fee and pricing structure is very reasonable in comparison.

If you are looking for an ERC Company that believes in providing professional ERC Services and value, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you. 

Schedule Your Free Employee Retention Credit Consultation to see what amount of employee retention tax credit your company qualifies for.

Cover Image Credit: Irs.gov / ERC FAQ / Disaster Loan Advisors.

Leave a Reply

Your email address will not be published. Required fields are marked *