Welcome back! Ask questions, get answers, and join our large community of tax professionals.
Showing results for 
Search instead for 
Did you mean: 


Level 1

Employee retention credit:

Do you have to reduce expense by the credit?

The credit is not taxable?


New rules regarding PPP now show expenses are deductible and loan forgiveness is not taxable?  Does the same apply to Retention Credit of up to $5k per employee retained?


Also, did CA finally comply with Feds?




0 Cheers

This discussion has been locked. No new contributions can be made. You may start a new discussion here

3 Comments 3
Level 15
Level 15
CA does not conform. Expenses are not deductible on the CA return.

Level 15


ERC is a Federal only concept; it's not the same as the PPP loans.

edit... oops.... I see you were answering the second part of the OP & I hadn't gotten that far.


"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
Level 15


Yes, the payroll expense is reduced by the ERC - same protocol as the W.O.C.  (I'm 99.9% sure, that's tonight's homework).

The credit is taken on the F.941.  It isn't taken into income, other than by reducing the deduction.  But credits are dollar for dollar against tax.  Taking ERC on the F.941 can generate LARGE refunds; more than enough to offset any additional tax generated by losing part of the deduction.



The loan has never been considered income; and Congress passed the law on 12.21/Trump signed it 12.27/ IRS conceded that the expenses paid with PPP funds ARE deductible.  Some states agree, some states don't.  CA disallows the deduction paid with PPP funds.  

"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"