If You Received Emloyee Retention Credits, You will Need to Amend Your Tax Returns

Navigating the Complexities of Amending Tax Returns for the Employee Retention Credit

Many businesses have received money from the Employee Retention Credit program over the last few years. While many companies offered the service of applying for these credits, it was not made well known that you are required by the IRS to amend your tax returns for the years that these credits applied to (they were payroll tax credits and applied to various quarters in the 2020 and 2021 tax years).

When a business amends a payroll return to claim the ERTC, it essentially reduces the payroll expenses previously claimed. This reduction in expenses leads to an increase in taxable income, necessitating amendments to business income tax returns.

The amendment will need to be filed first for the business that claimed the credit, and then if the business is a flow through entity (partnership or S-corporation), the personal returns will need to be amended for those years to show the increase of taxable income. Generally tax will be due as the prior returns filed would have shown lower income.

Recognizing the challenges posed by these amendments, the IRS has offered potential relief from penalties for late payment of taxes due to the retroactive claim of the ERTC. Employers may qualify for relief if they can demonstrate reasonable cause for their inability to pay the additional taxes on time. The IRS's First Time Penalty Abatement (FTA) program also offers a pathway for administrative relief from penalties for failing to pay on time.

Businesses must be aware of this responsibility as it is reasonable to assume that the IRS will be verifying that the amended returns have been filed for all businesses who have claimed the credit.

While the ERTC offered a valuable opportunity for businesses affected by the pandemic, claiming the credit through amended returns requires careful consideration and planning. By understanding the implications, seeking professional advice, and staying informed about IRS guidelines, businesses can successfully navigate this process and secure the financial support they need.

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