Do you record the deposit from Employee Retention Credit on Page 1 line 7c

[lillyjohnson]

My client received a refund check for the Employee Retention Credit.  I DB Cash and CR contra wages account.  When I enter the refund on Page 1 line 7c it automatically creates a book/tax adjustment on M1.  I do not have a book tax difference.  My balance sheet is also out of balance by this amount.  Do I have to enter the ERC refund on Pg 1 line 7c or can I just enter net wages on line 8?

[sjrcpa]

What year(s) was the ERC for?

Are you preparing the 2022 tax return?

[lillyjohnson]

They received it for 2020 and 2021 941s. Yes, we are preparing the 2022 tax return.

[sjrcpa]

You have to amend the 2020 and 2021 tax returns to reduce the wages.

The interest received in 2022 when they got the money is taxable in 2022.

The amount of the credit received in 2022 would be income on books not on tax return.

[rkorpascpa]

sjrcpa.  If the client received the refund in 2025, would you adjust the 2020,2021 and 2022 books or just the tax return and record the income on the 2025 tax return as tax free income?

If prior year AJE, what would the DR and CR be? 

DR  A/R

CR        Payroll taxes or some Other Income? 

Thanks in advance

[sjrcpa]

As I said before, you adjust the tax returns for the year(s) of the credit - 2020 and 2021. Interest income is income in the actual year received - 2025 in your example.

"

DR  A/R

CR        Payroll taxes or some Other Income? "

The credit is to wages.