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Claim the Employee Retention Credit

Employers can now claim the Employee Retention Credit (ERC)—a refundable tax credit for 50% of up to $10,000 in wages, per employee. The credit is available for eligible employers whose businesses have been financially impacted by COVID-19. 

This is only effective for wages paid March 13, 2020 through December 31, 2020.

Important: If your company has more than 100 employees, do not claim the ERC in Gusto unless all employees are currently being paid, and none of them are working.

Claim the ERC in Gusto

  1. Go to the COVID-19 section in your Gusto account.
  2. Click Claim credit on the tile called “Claim the employee retention tax credit.”
  3. Read through the FAQs and eligibility requirements. When you’re ready to move forward, click Claim credit.
  4. Select the calendar quarter that you’d like to claim the ERC and click Claim credit.

Once you’ve claimed the credit, you can make changes in the same tile from the COVID-19 section of your account by clicking Update your claim.

After you claim the ERC, you’ll see a confirmation page with details and reminders.

If you chose Q1 or Q2, we will apply current and those retroactively accrued credits to payrolls that have already processed, and you can claim any additional credits immediately by filing the Form 7200. Go to the Help section of you Gusto account to contact our team for totals.

How are credits applied?

If you have not opted into Social Security Tax Deferrals, we will apply your accrued credits to the 6.2% Social Security tax that employers are required to pay on wages—meaning we will not debit your account for that amount. Any excess credits you’ve accrued can be reported on Form 7200 to be refunded by the IRS. 

  • Each time you file Form 7200 to the IRS, you’ll need to report credits claimed to Gusto so that we can have accurate data for filing. 

To be eligible, an employer must meet one of the following conditions:

  1. Operations are fully or partially suspended during the calendar quarter due to a COVID-19 related government authority order.
  2. Gross receipts for a calendar quarter are <50% compared to the prior year. Employers can claim the credit during the first quarter that they see this decline, until it recovers to 80% or more of the gross receipts for the same calendar quarter in the prior year.

If an employer is eligible at all within a quarter, they are eligible for the entire quarter. 

Employers with 100 or fewer employees are eligible if they meet either of the conditions above. If you have more than 100 employees, you must meet one of these conditions AND all of your employees are being paid, but none are working.

Who is ineligible?

Businesses that receive a Paycheck Protection Program loan under the CARES Act are not eligible for this credit. 

What are qualified wages?

  • Qualified wages under the ERC include qualified health care costs. Qualified wages can't exceed $10k per employee on a cumulative basis over all quarters, whether or not they include health care premiums.
  • Wages paid for Emergency Paid Sick Leave or Expanded Paid Family Leave are not eligible for the ERC if you take the tax credit under the Families First Coronavirus Response Act. We will not apply the credit to paid leave wages, but will apply the ERC credit to regular wages. 
  • Employees who receive a Work Opportunity Tax Credit (WOTC) are not eligible.

How will credits from Q1 be applied? 

Because the credit became effective March 13, the credit can be applied for Q1 payrolls on or after March 13. However, the bill was only passed on March 27, so the IRS guidance is to file Q1 credits with Q2 filings. 

Heads up!

Once the quarter ends (3/31, 6/30, 9/30 or 12/31), we will no longer be able to update or remove credits. If you claim the ERC for a quarter and after the quarter ends it’s determined that you were  ineligible, the IRS will send you a penalty notice—Gusto will not file an amendment for ERC credit that was applied in error. The IRS also does not accept amended/corrected Form 7200, mistakes will be reconciled at the end of the year.

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