8556 / What do employers need to know about claiming the CARES Act employee retention tax credit? Are there any reporting requirements?

Editor’s Note: The ERTC expired after the third quarter of 2021.

Employers were entitled to reduce their quarterly payroll tax deposits (i.e., amounts withheld from employee pay) by the amount of the credit. In other words, the credit was available in advance, rather than during tax filing season. Employers reported total qualified wages (and health insurance costs) quarterly on their employment tax returns, or Form 941, beginning with the second quarter. If payroll tax deposits were not sufficient to cover the amount of the credit via withholding from the usual deposits, the employer could file Form 7200, Advance Payment of Employer Credits Due to COVID-19.¹

Generally, employers are required to deposit employment taxes quarterly. Practically, many employers must make deposits monthly, weekly or even daily (employers that accumulate $100,000 or more in employment taxes on any day within a deposit period are required to deposit those amounts on the next banking day).² Most employers report employment tax liability quarterly on Form 941, which is where the refundable credits were reported.