Updated January 26, 2021
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Consolidated Appropriations Act and the American Rescue Plan Act of 2021, 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 for the year 2020, and
- $7,000 per employee for each quarter of 2021 (70% of up to $10,000 in qualified wages) for a possible $28,000 credit per employee.
Credits can be viewed in OnPay, and applied to the employer portion of social security taxes. We'll show you how, but for more general information, see how the CARES Act helps small businesses, their owners, and employees and learn more about how the employee retention credit works in our COVID-19 Resource Center.
What we'll cover
- Getting started
- Who is eligible for the Employee Retention Credit?
- Applying Employee Retention Credit
- How does OnPay handle my ERC related tax credit?
- View a summary of ERC tax credit
- Redeem credit using a refund from the IRS
Getting started
Click COVID-19 in the left menu.
Scroll down until you see "Employee Retention Credit (ERC)". Here, you can see how the credit works, and who's eligible.
Who is eligible for the Employee Retention Credit?
Beginning January 1, 2021, the credit will be available to businesses with operations that are either:
- Business operations are suspended (fully or partially) by a COVID-19 governmental order (only applies during the period in which the order is in force)
- Gross receipts are less than 80% of gross receipts for the same quarter in 2019. (Businesses that were not in existence in 2019 may use a comparison to 2020 for purposes of the credit)
Applying Employee Retention Credit
Unless you've already elected for OnPay to calculate and apply this credit, you'll see an option to chat with us, or call us at (877) 328-6505 to start applying these credits.
Once you're able to use this credit, you will see a new notification at the approval stage for each new pay run. This notification details how much Employee Retention Credit you're eligible for, as well as how by much your payroll tax liability is reduced.
How does OnPay handle my ERC related tax credit?
When you opt to use the Employee Retention Credit in your account, OnPay will calculate your credit balance for qualified wages paid since January 1, 2021, and add that amount to your ERC credit balance. We will continue to calculate additional qualified credit for future pay runs through December 31, 2021, and that value will be added to your credit balance.
OnPay will automatically keep track of those credits and apply them reducing your 941/943 tax liability. By default, any remaining credits will be used 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 (January 1, 2021 to December 31, 2021) are in accordance with the CARES Act and IRS guidelines).
View a summary of ERC tax credit
In the "Employee Retention Credit" section of the COVID-19 menu, you can keep track of your credit balance.
What you can see
- 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: A summary of the refund value reported by you after you've submitted Form 7200 to the IRS
Click View Details for line item summary of your credit balance and usage, including credits and reductions, check dates, run IDs, and employees.
You can also print this report.
Redeem credit using a refund from the IRS
After OnPay automatically applies your tax credits towards your 941/943 liability, it is possible you may have some remaining credit value. There's nothing you need to do for this credit to rollover. We'll 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 do the following:
- File a Form 7200 directly to the IRS to claim the remaining value
- Report the total in Part II of Form 7200 in OnPay (this is required to ensure accurate records of your remaining credit balance)
Click Redeem With a Refund to report your IRS ERC refund.
Enter the amount reported 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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