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Cassidy Jakovickas.

published on January 24, 2023 - 1:32 PM
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If you’ve read any of my previous articles about the Employee Retention Tax Credit (ERC), you know that it’s one of the most lucrative tax opportunities in recent years. However, because the IRS is currently backlogged in processing the amended payroll tax returns on which the ERC is claimed, you may be wondering how to treat the ERC on your tax return. In this article, I’ll explain some ERC tax considerations to keep in mind.

A quick recap on how you claim the ERC tax credit

If you pass the gross receipts test or suspended operations test for 2020 or 2021, you’re an eligible employer for the ERC and can start calculating your qualified wages. In case you don’t know, qualified wages are wages that are countable when you’re calculating your ERC amount. Here is how that looks for 2020 and 2021:

  • 2020: You may claim the ERC for up to 50% of qualified wages paid during your eligible periods.
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  • 2021: You may claim the ERC for up to 70% of qualified wages paid in eligible quarters.

After calculating your amount of qualified wages, you must file an adjusted quarterly payroll tax return (Form 941-X) for each quarter in which you are eligible for the ERC tax credit. 

Should you pay any additional tax owed before or after receiving your ERC credit amount?

As noted under Internal Revenue Code Section 280C, you must reduce your income tax deduction by your ERC credit amount in the tax year for which you’re claiming the ERC credit. For example, if you qualified for ERC in Q2 and Q3 2021 and your credit was $50,000, your wage expense deduction on your 2021 tax return would be reduced by $50,000. Reducing your income tax deduction may increase your taxable federal income and income tax liability depending on your tax situation. 

Note that you are responsible for any additional tax liability that results from ERC-related adjustments, whether or not you’ve actually received your ERC refund check. This additional tax liability can be a problem if you’re waiting for your ERC tax refund, which is likely to be delayed since the IRS is currently backlogged in processing amended quarterly payroll returns for ERC claims. If this is the case for you, the IRS has announced relief measures for you.

The IRS is offering penalty relief for ERC-related late tax payments

Based on the guidance in Notice 2021-49, the IRS has stated that you can receive relief from the failure-to-pay penalty if you can demonstrate reasonable cause and that you were not negligent in your failure to pay on time. 

To learn more about determining your ERC eligibility, you can read “Are you overlooking the Employee Retention Tax Credit opportunity?” If you’re searching for an ERC professional to help you claim this tax credit, be sure to avoid ERC fraudsters. You can always get professional, trustworthy help with the ERC from my team and me at MBS Accountancy.


Cassidy Jakovickas, CPA, is president and CEO of MBS Accountancy Corp. in Downtown Fresno.


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