Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, certain employers (including tax-exempt entities) are eligible for a fully refundable tax credit equal to 50% of up to $10,000 in qualified wages paid to each employee. Credits can then be applied to the employer portion of social security taxes.
This article will walk you through everything you need to know about using the Employee Retention Credit (ERC) in OnPay.
- Is my business eligible to receive an Employee Retention Credit?
- How to opt to use the Employee Retention Credit in OnPay
- How does OnPay handle my ERC related tax credits?
- How to view a summary of ERC tax credits in OnPay
- Redeem a remaining credit balance from the IRS and record it in OnPay
For more general information, see Overviews on the CARES Act and ERC in our COVID-19 Resource Center.
Is my business eligible to receive an Employee Retention Credit?
An employer is eligible to receive this credit when it was in business during the 2020 calendar year and either:
- Fully or partially suspended operations during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- Experienced a significant decline in gross receipts, compared to the same calendar quarter in 2019.
An employer is not eligible for this credit if they are:
- An employer that receives a Small Business Interruption Loan under the Paycheck Protection Program
- A governmental employer
Note: Self-employed individuals are not eligible for this credit for their self-employment services or earnings.
To learn more about which businesses are eligible to use an Employee Retention Credit, see our guide to the ERC.
How to opt to use the Employee Retention Credit in OnPay
From the main dashboard of your OnPay account, navigate to COVID-19 from the side menu to the left.
On this page, as you scroll down you will see that the third section is an Employee Retention Credit summary.
Here, you will see some details on eligibility for the credit. Note that a business that receives a Small Business Interruption Loan under the Paycheck Protection Program (PPP) is not eligible.
If your business is eligible and you want to start using the credit, then tick the "Yes" selection box under Use the Employee Retention Credit section.
Once you have opted to use this credit, when you go to run payroll you will see a new notification at the approval stage for each new run.
This notification details how much Employee Retention Tax credit you will be eligible for when you process this new pay run, as well as how much OnPay will reduce your payroll tax liability as a result.
How does OnPay handle my ERC related tax credits?
When you opt to use the Employee Retention Credit in your account, OnPay will calculate your credit balance for qualified wages paid since March 13, 2020 and add that amount to your ERC credit balance. As long as you remain opted in to the ERC option in your account, we will continue to calculate additional qualified credit for future pay runs through December 31, 2020; that value will be added to your credit balance. OnPay will automatically keep track of those credits and apply them towards eligible payroll taxes.
After we apply the credit towards reducing your 941/943 tax liability, it is possible there may be some credit remaining. By default, OnPay will continue to reduce the tax payment of your future pay runs until all of the remaining credit is used.
If you would prefer to receive the remaining credit via refund, you can opt to file a Form 7200 with the IRS directly. You will need to report in OnPay the refund amount so we know to reduce the value of credit remaining (see more information below).
Note: The dates for qualified wages (March 13, 2020 to December 31, 2020) are in accordance with the CARES Act and IRS guidelines).
How to view a summary of ERC tax credits in OnPay
From the main dashboard of your OnPay account, navigate to COVID-19 from the side menu to the left.
On this page, as you scroll down you will see that the third section is an Employee Retention Credit summary.
Here, you can view breakdowns of your ERC related tax credits and usage, including:
- Credit balance: The value of Employee Retention Credit funds that have not yet been redeemed.
- Total credits: The cumulative value of ERC related tax credits attributed to your account
- Total payment reductions: The value of ERC tax credits that OnPay has already applied towards a reduction in your 941/943 tax liability.
- Total redeemed via refund: If you choose to redeem any remaining credit by submitting a Form 7200 for a refund direct from the IRS, you'll need to report that value in OnPay. We'll keep a summary of the refund value here for your records.
To view a more detailed summary of the credit balance and usage, click View Details.
This will generate a line-item detailed report summarizing your ERC related tax credits and usage.
Redeem a remaining credit balance from the IRS and record it in OnPay
After OnPay automatically applies your tax credits towards your 941/943 liability, it is possible you may have some remaining credit value. No action is required; we will continue to reduce the tax payment for your future pay runs until all of the remaining credit balance is used.
However, you also have the option to redeem the remaining balance by refund from the IRS. To do this, you will need to file a Form 7200 directly to the IRS to claim the remaining value.
If you do this, you'll need to report it in OnPay so we have accurate records of your remaining credit balance.
In the Employee Retention Credit section of the page, you'll see a section titled Redeem Credit Using a Refund from the IRS.
From there, click the Redeem with a Refund button.
A dialogue window will appear. Enter the value of the refund you claimed when submitting Form 7200 to the IRS, and click Save.
Your remaining credit balance will update to reflect the value of these funds redeemed via refund.
Keep up to date with all of this and more by checking our COVID-19 Resource Center. We’re updating it regularly as there are new developments and government guidance.
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