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Where to enter the Employee Retention Credit in Lacerte

by Lacerte Tax 2020 Updated 2 months ago

This article will help you enter the Employee Retention Credit on your client's tax year 2020 and 2021 income tax returns. Although the credit is claimed on payroll filings (Form 944, 941, or equivalents), you may need to adjust amounts on the tax return to account for the credit claimed.

The credit is available to eligible employers that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. This credit isn't applicable for tax year 2022, or newer returns.

Partnership:

  1. Go to Screen 13, Deductions.
  2. Enter the amount of Salaries and wages before any reduction.
  3. Enter the credit as a positive number in Less: Employee retention credit claimed on employment tax returns.

The wage expense deduction on Form 1065, line 9 will be reduced by this amount. Nonconforming states will also subtract this amount on the state return.

S Corporate:

  1. Go to Screen 15, Deductions.
  2. Enter the amount of Salaries and wages before any reduction.
  3. Enter the credit as a positive number in Less: Employee retention credit claimed on employment tax returns.

The wage expense deduction on Form 1120S, line 8 will be reduced by this amount. Nonconforming states will also subtract this amount on the state return.

Corporate:

  1. Go to Screen 38, Balance Sheet Miscellaneous.
  2. Enter '1' or '2' in Schedule M-1 adjustments for refundable employment credits: 1=yes, and 2=no to either include or exclude the adjustment that automatically calculated on Schedule M-1.
  1. Go to Screen 20.1, Deductions.
  2. Enter the amount of Salaries & wages, other than officers before any reduction.
  3. Enter the credit as a positive number in Less employee retention credit claimed on employment tax returns.

The wage expense deduction on Form 1120, line 13 will be reduced by this amount.

By default, the program will create an M-1 adjustment for the credit as an expense recorded on books not on the Schedule K. This may not be accurate for all taxpayers, so the following informational diagnostic will generate:

This return contains Schedule M-1 adjustments for refundable employment tax return credits...These Schedule M-1 adjustments may not be necessary for this return. If you wish to suppress the calculation of these Schedule M-1 adjustments, enter 2 in "Schedule M-1 adjustments for refundable employment tax return credits" (ref. 55313, 55320, or 55321).

To eliminate the M-1 adjustment on one return:

  1. Click on the diagnostic to jump to the Balance Sheet Miscellaneous screen.
  2. Enter a 2 in Schedule M-1 adjustments for refundable employment tax return credits.

Or, to eliminate the M-1 adjustment for all returns in this tax type:

  1. Click on the Settings menu at the top of Lacerte, then press Options.
  2. Select the Tax Return tab.
  3. Scroll down to the Federal Tax Options section.
  4. Set Sch. M-1 Adjustments for Refundable Employment Tax Return Credits to No.

Individual returns

Schedule C:

  1. Go to Screen 16, Business Income (Sch. C).
  2. Scroll down to the Expenses section.
  3. Enter the Total wages before any reduction.
  4. Enter the Employee retention credit claimed on employment tax return as a positive amount.

The wage expense deduction on Schedule C, line 26, will be reduced by the credit amount.

Schedule E:

  1. Go to Screen 18, Rental and Royalty Income (Sch. E).
  2. Scroll down to the Expenses section.
  3. Enter the Wages and salaries before any reduction.
  4. Enter the Employee retention credit claimed on employment tax return as a positive amount.

The wage expense deduction on Schedule E, line 26, will be reduced by the credit amount.

Schedule F:

  1. Go to Screen 19, Farm Income (Sch. F, 4835).
  2. Scroll down to the Farm Expenses section.
  3. Enter the Labor hired before any reduction.
  4. Enter the Employee retention credit claimed on employment tax return as a positive amount.

The labor hired deduction on Schedule F, line 22, will be reduced by the credit amount.

Lacerte Tax

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