Employer Retention Credit - Amend 2020 or record everything in 2021?

[Julio354]

Hi all, I have a client S-Corp who hired an outside consulting company to calculate and claim for the ERTC and can successfully claim over $1,500,000 in ERTC from dates ranging 3/31/2020 to 9/30/2021.  Are we supposed to divide this credit between 2020 and 2021 and end up amending 2020 1120s and shareholder 1040's? 

Doesn't that mean the 2020 1040 for the S-corp shareholder, once also amended for the corrected k-1, will generate letters indicating massive underpayment penalties and interest?

Would it be better to record the full credit for that entire covered period as a receivable in 2021?  It will generated a massive tax bill for the shareholder for April 18, but I'm $1,500,000 coming in should provide a nice cushion for that.

[qbteachmt]

"Are we supposed to divide this credit between 2020 and 2021"

It's Quarterly. The 941X is for specific quarters.

Yes, that will change the payroll expense for the 1120S for each cycle. This is not like "forgiven" loan accruals. This is Payroll Tax credits against wage expenses.

[Julio354]

Thanks. So it looks like I should obtain the amended 941's and use those are my credits for 2020 and 2021. 

Was trying to avoid amending an 1120S for 2020 and the corresponding shareholder's 2020 1040 and risking getting letters saying they owe massive underpayment penalties as a result of the large amendment.

[qbteachmt]

Well, you would have to read up on all of the Acts, updates and IRS clarifications (via notices and procedures) that apply. I would have expected that consultant to be involved. Example:

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-how-to-claim-the-employee-r...

[sjrcpa]

The shareholders won't get penalties if they timely pay the additional tax due with the amended returns.

[sjrcpa]

Those consultants do nothing but look at the raw numbers and collect 20- 30% of the credits as their fee.

[sjrcpa]

Hint: Everyone may want to wait to amend 2020 until the ERC money is received. That way there is money with which to pay the tax. 

It was taking about 8 months to get the ERC refunds last I knew.

[qbteachmt]

Wow, a finder's fee that high when you know there are never more than 4 941X in a year to redo? I'm in the wrong business. Maybe I should have kept my payroll clients...

[shelray]

Does a cash basis tax payer amend the 20 & 21 return if the refunds of the 941X's were received in 2022?

[qbteachmt]

"If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction."

https://www.irs.gov/newsroom/employers-warned-to-beware-of-third-parties-promoting-improper-employee...

"Based on applicable law, IRS guidance provides that an employer must reduce its income tax deduction for the ERTC qualified wages by the amount of the ERTC for the tax year in which such wages were paid or incurred. Taxpayers that claimed the ERTC retroactively and filed an amended income tax return reducing their deduction for the ERTC qualified wages paid or incurred in the tax year for which the ERTC is retroactively claimed have an increased income tax liability but may not yet have received their ERTC refund."

https://www.irs.gov/newsroom/irs-reminds-employers-of-penalty-relief-related-to-claims-for-the-emplo...