I just would like to clarify the Nonrefundable portion of COBRA credit.
The 2nd quarter 2021 if we did not have the credit for qualified sick/family and employee retention credit the nonrefundable portion of COBRA will be 0 on the IRS Worksheet 5. correct?
The COBRA credit is separate from the sick and family leave credits and the employee retention credit. If you had credit eligible COBRA costs (the amount of COBRA payments that were not paid the COBRA eligible individuals - then the non-refundable portion of the COBRA credit would be limited by the amount of employer share of Medicare tax for the quarter.
On the worksheets, step 1 is the computation of the amount of employer share of Medicare tax (Worksheets 3,4, and 5 - on Worksheets 1 and 2 the amount of employer share of Social Security tax) that is available for the nonrefundable portions of the various tax credits. The credits for increasing research activities and the two work opportunity credits may be taken against the employer share of Social Security tax. These credits are taken before the COVID related credits on worksheets 1 and 2 and do not have a refundable portion. Any employer share of Social Security tax remaining available after those credits are applied first to the refundable portion of the Sick and family leave credits and then, if any is still left, to the employee retention credit. Any remaining sick and family leave and employee retention amounts remaining once the employer share of Social Security tax us used up becomes refundable credit.
For worksheets 3, 4, and 5, the nonrefundable portions of the COVID tax credits are taken against the employer share of Medicare tax. there are no other tax credits involved for these worksheets. The nonrefundable portion of the sick and family leave credits are taken first, then if any employer Medicare tax is remaining, the employee retention credit is applied, and finally, if any is still remaining, the COBRA credit is applied. Any excess COVID credits over the non-refundable amounts are taken as refundable credits.
On worksheet 5, if you had Sick and family leave credits or employee retention credits that applied to employer share of Medicare tax (either worksheet 3 or worksheet 4) you would compute the amount of employer Medicare tax available for the nonrefundable credits in Step 1 and enter that on worksheet 5 step 1a and then go directly to step 2. If you did not have any sick and family leave credits or employee retention credit for the quarter, you leave step 1a blank and compute the amount of employer Medicare tax available for the nonrefundable credit using steps 1b though 1g then move on to step 2.
Any excess of the COVID and COBRA credits over the employer share of Medicare tax, become refundable credits.
So what is the difference. As far as I can tell, the nonrefundable credits reduce the employer's actual tax liability without reducing the employee taxes recorded for income tax and additional Medicare tax applied to the employee's 1040 account and without reducing the amount of Social Security and Medicare taxes applied to the employee FICA accounts.
The refundable credits, on the other hand, are intended to put disaster relief cash into the hands of employers (or reimburse employers for the cost of the COBRA credit which provides relief for COBRA credit eligible individuals.