The IRS recently updated its guidance regarding the Employee Retention Credit’s (ERC) effect on taxable income. The IRS has consistently advised taxpayers to reduce wage expense in the year corresponding to the credit, either 2020 or 2021. The IRS, however, has been experiencing a backlog in processing ERC claims, which has prompted some worry that the IRS may deny an ERC claim, and by then, it will be too late to amend a tax return to restore the wage deduction.
The IRS has added new questions to its FAQ to address these concerns. They remind taxpayers that they should not have claimed a wage deduction in 2020 or 2021, however, if no wage adjustment was made in 2020 or 2021, the new guidance says that the adjustment can be made in the year the ERC funds were actually received.
If the taxpayer did reduce wage expense in 2020 or 2021, and the IRS subsequently denies the ERC claim, the taxpayer can claim the additional wage expense in the year the claim disallowance is final. Amended returns or protective claims for refund are permitted but not required.
For more information, visit Frequently asked questions about the Employee Retention Credit | Internal Revenue Service
If you have questions or require additional information, please contact your WG advisor.
The information provided in this alert is for informational purposes only and is based on current tax laws and regulations at the time of publication. It should not be construed as legal, tax, or financial advice. While we strive to ensure accuracy, tax laws are subject to change, and individual circumstances may vary. Please consult with your legal or WG tax advisor before making any decisions based on the information provided. WilkinGuttenplan is not responsible for any errors or omissions, nor for any actions taken based on this content.
