How to Record Employee Retention Credit in QuickBooks Desktop
Employee Retention Credit (ERC) is a tax credit designed to encourage businesses to retain employees during challenging economic times, such as the COVID-19 pandemic. If you are eligible for this credit, it is essential to know how to record it accurately in your QuickBooks Desktop software. In this article, we will guide you through the process of recording the ERC and answer some common questions related to it.
Recording the Employee Retention Credit in QuickBooks Desktop:
Step 1: Set up the Employee Retention Credit account:
1. Go to Lists and select Chart of Accounts.
2. Click on Account and choose New.
3. Select Income as the account type and name it “Employee Retention Credit.”
4. Save the changes.
Step 2: Create a journal entry to record the credit:
1. Go to Company and select Make General Journal Entries.
2. Enter the date of the credit.
3. Debit the Employee Retention Credit account for the amount of the credit.
4. Credit the appropriate payroll expense account for the same amount.
5. Save the journal entry.
Step 3: Apply the credit to the payroll tax liability:
1. Go to Employees and select Payroll Tax Liability.
2. Choose Adjust Payroll Liabilities.
3. Enter the date of the credit.
4. Select the appropriate tax liability item for the ERC.
5. Enter the amount of the credit.
6. Save the changes.
Step 4: Verify the credit on payroll tax forms:
1. Go to Employees and select Payroll Tax Forms & W-2s.
2. Choose Process Payroll Forms.
3. Select the relevant form, such as Form 941 or Form 944.
4. Verify that the Employee Retention Credit is reflected correctly.
5. Complete and file the form as required.
Common Questions and Answers:
Q1: Who is eligible for the Employee Retention Credit?
A1: Eligibility for the ERC depends on various factors, including the size of your business, the impact of COVID-19 on your operations, and whether you continued paying wages during the relevant period. Consult with your tax advisor or refer to IRS guidelines for specific eligibility criteria.
Q2: How much is the Employee Retention Credit?
A2: The maximum credit amount is $5,000 per eligible employee for 2020, and $7,000 per eligible employee per quarter in 2021. The credit is calculated based on a percentage of qualified wages paid to eligible employees.
Q3: Can I claim the Employee Retention Credit for employees on leave or furlough?
A3: Yes, you can claim the credit for wages paid to employees who were on leave or furlough, as long as they remained on your payroll during the relevant period.
Q4: Can I claim the Employee Retention Credit if I received a PPP loan?
A4: Initially, businesses that received a PPP loan were not eligible for the ERC. However, the Consolidated Appropriations Act of 2021 allowed retroactive eligibility for the ERC, subject to certain restrictions. Consult with your tax advisor for specific details.
Q5: How do I determine which wages qualify for the credit?
A5: Qualified wages include certain wages paid to eligible employees during the applicable period. The calculation of qualified wages depends on various factors, such as the size of your business and whether your business experienced a full or partial suspension of operations. Consult with your tax advisor or refer to IRS guidelines for specific details.
Q6: Can I claim the Employee Retention Credit for past quarters?
A6: Yes, the ERC is retroactively available for certain quarters in 2020 and 2021. You can file amended payroll tax forms to claim the credit for past quarters if you meet the eligibility criteria.
Q7: How long should I retain records related to the Employee Retention Credit?
A7: It is recommended to retain all records related to the ERC for at least four years from the due date of the tax return on which the credit was claimed.
Q8: Can I claim the Employee Retention Credit if I use a third-party payroll service?
A8: Yes, you can claim the credit even if you use a third-party payroll service. However, you should ensure that the service provider accurately reflects the credit on your payroll tax forms.
Q9: Are there any limitations to claiming the Employee Retention Credit?
A9: Yes, there are certain limitations, such as the amount of qualified wages per employee and the overall credit amount per quarter. Consult with your tax advisor or refer to IRS guidelines for specific limitations and restrictions.
Q10: Can I claim the Employee Retention Credit for self-employed individuals?
A10: No, the ERC is not available for wages paid to self-employed individuals. However, self-employed individuals may be eligible for other tax credits or benefits related to COVID-19 relief.
Q11: Do I need to reduce my tax deductions for wages claimed as Employee Retention Credit?
A11: No, you do not need to reduce your tax deductions for wages claimed as ERC. The credit is treated separately from other deductions and does not impact your tax deductions.
Remember, it is crucial to consult with a tax advisor or accountant to ensure accurate recording and claiming of the Employee Retention Credit based on your specific circumstances and the latest IRS guidelines. QuickBooks Desktop can provide a streamlined process for recording and tracking the credit, but professional guidance is recommended to maximize its benefits.