Amending Returns to Claim Employee Retention Tax Credit
It is not uncommon for business owners to amend their tax returns in order to claim the Employee Retention Tax Credit (ERTC). In fact, in tax and accounting circles, there has been a substantial amount of discussion related to filing amended returns to claim the ERTC that was overlooked in the original filings.
If considering filing late, first determine if the employer qualifies and if the amount of the credit is worth it.
Issues To Consider When Filing Late or Amending a Prior Return
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The credit is a credit against future payroll taxes.
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Form 7200 - Advance Payment of Employer Credits Due to COVID-19, cannot be filed after 1/31/2022. So the only option is amending using Form 941-X.
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You will note there is even a box to check (line 31b) when amending for the ERC and the instructions for 941-X includes a worksheet (#2) that includes a step 2 that deals with the ERC.
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The ERC cannot be claimed for wages that were part of the PPP loan forgiveness.
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No deduction is allowed for wages that are used for the ERC credit. No double dipping. Thus, if amending for the ERC, the income tax return must also be amended, and the claimed wages reduced by the amount of the credit.
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For a self-employed person this could mean an increase in self-employment tax because the payroll expense deduction will be reduced.
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An employer receiving a tax credit for qualified wages does not include the credit in gross income for federal income tax purposes. Neither the portion of the credit that reduces the employer's applicable employment taxes, nor the refundable portion of the credit, is included in the employer's gross income.
IRS Q&A
The IRS provides an extensive set of FAQs on their website:
https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
