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Client amended forms 941 for 2020 and 2021 to claim the ERC, resulting in a refund of $520,000 being received in 2023. I am trying to confirm the correct way to report this amount.
From what I can tell, this amount should not affect the 2023 return. It appears the 2020 and 2021 returns need to be amended to deduct the amount of the credit received in that year from the gross wages reported. For example, if the client originally reported $1,200,000 in gross wages in 2021, and received a refund of $400,000 as a result of the amended 941's from that year, 2021 should be amended to reflect $800,000 in gross wages paid.
Thank you all in advance, any and all help is greatly appreciated.
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The fees (if any..) paid to file for the ERC refunds however are deducted in the year 'paid', not on the amended returns.
And any interest paid by the IRS on the refunds also goes into the current year (the year received), not on the amended return. I think...I have to verify that soon for a couple of returns I'm working on this weekend.
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BEFORE you do anything, look at if it is reasonable that they may have QUALIFIED for that amount of ERC. There has been WAY too much fraud with that credit, and the IRS has warned tax preparers of amending returns to "perpetuate" an incorrect credit.
https://www.irs.gov/pub/irs-utl/2023-02-professional-responsibility-and-the-employee-retention-credi...
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I know this conversation is a year old but I came across the following within the IRS ERC frequently asked questions. Does this mean that they can report the refund in the year received rather then amend?
A2. You should address your overstated wage expense. Under these facts, you’re not required to file an amended return or, if applicable, an administrative adjustment request (AAR) to address the overstated wage expenses. Instead, you can include the overstated wage expense amount as gross income on your income tax return for the tax year when you received the ERC.
Example: Business A claimed an ERC of $700 based on $1,000 of qualified wages paid for tax year 2021 but did not reduce its wage expense on its income tax return for 2021. The IRS paid the claim to Business A in 2024, so Business A received the benefit of the ERC but hasn’t resolved its overstated wage expense on its income tax return.
Business A does not need to amend its income tax return for tax year 2021. Instead, Business A should account for the overstated deduction by including the $700 in gross income on its 2024 income tax return.
