How do you report Employee Retention Credit on the 2022 tax return?

Forum|Forum|3 years ago
February 2, 2023
1 reply
18 views

I have a client that received a $90k ERC in 2022. But the wages were incurred in 2021. I have read in Notice 2021-20 that we will basically need to amend 2021 to reduce the wage deduction in that year. Wow! I not only need to amend the 2021 1120S but each of the shareholders 2021 returns (a couple days of work at least). Also, the shareholders will need to pay tax with the 2021 returns based on the $90k additional taxable income.
Someone please tell me I am overlooking a way to report this as income (or a reduction of wage expense) on the 2022 return.

Thanks for any help you can provide!

ProConnect Tax

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sjrcpa

Level 15

Amending 2021 is correct.

The more I know the more I don’t know.

C

cw-kwtbs

Level 2

I have the same issue, but my client received $170k in ERC funds in 2022 for 2021 amended 941s. If we amend his 1120s his personal K-1 will now show $170k in more income which will result in at least $50k in more state and federal taxes that was due in early 2022. What happens to the failure to pay penalties and interest that will be due along with the taxes owed? I think we should be able to place the ERC money into the 2022 tax return, this would solve those issues since the ERC money wasn't received until 2022.

sjrcpa

Level 15

If you file the 1040X and pay the balance due, I do not think there will be interest and penalty.

From the 1040X Instructions (imagine that):
Penalty for late payment of tax. If you don’t pay the additional
tax due on Form 1040-X within 21 calendar days from the date
of notice and demand for payment........, the penalty is
usually 1/2 of 1% of the unpaid amount for each month or part of
a month the tax isn’t paid. The penalty can be as much as 25%
of the unpaid amount and applies to any unpaid tax on the
return.

The more I know the more I don’t know.

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