If your business received Employee Retention Credit (ERC) funds in 2023 or a prior year for wages paid in an earlier year (typically 2020 or 2021), you may need to amend a previously filed income tax return.
According to IRS guidance, the ERC is a refundable payroll tax credit that must be applied to the year in which the qualified wages were originally paid. This generally means an amendment to your 2020 or 2021 income tax return may be necessary to reflect a reduced wage deduction. However, the IRS has recently acknowledged on its website that it will accept an amendment to the tax year in which the ERC funds were received — rather than the year the wages were paid — as an alternative approach.
In most cases, amending the year the ERC was received (e.g., 2023) may offer a more favorable tax outcome, particularly if the business reported losses or had lower taxable income in that year. Every situation is unique, and we evaluate the most beneficial and compliant path on a case-by-case basis.
Failing to amend any return could result in IRS scrutiny and potential penalties, including a 20% accuracy-related penalty, especially if the statute of limitations for the original wage year has not yet closed.
We recommend reviewing your situation to determine the best course of action. If an amendment is warranted, we suggest moving forward promptly to ensure compliance and minimize the risk of penalties or interest.
If you have any questions or would like us to assist in preparing the amended return, please don’t hesitate to contact our Tax team at [email protected].