We Do Books™ Blog

Many of our clients that have applied for The Employee Retention Tax Credit (ERTC) ask about the taxability of the refunds received.

Quick Answer: Yes, the ERTC refund is taxable.

The IRS has taken the position that the income is taxable in the tax year/tax period to which the credit applies.

The ERTC refunds relate back to 2020 or 2021. These amounts will be received in later years and are to be included as income on the respective prior year return. This process will require amended returns for the entity and any shareholders/partners. This will result in tax due for in the amended tax year. Since this tax will now be deemed late, the IRS will impose Interest and Penalties.

Good News — sort of... There is a process to apply for a penalty waiver with the IRS, but unfortunately it is a manual one.

What’s Actually Happening, no benefit cuts have been announced.

Retirees and beneficiaries will continue to receive their monthly checks. Administrative reshuffling is underway. Some Social Security offices are being consolidated or reorganized, but this does not affect the benefit amounts people receive. The Trust Fund challenge remains.

There's still time to act!

At the end of each year there are a number of things to consider that may have a positive impact on your tax obligation. Here is a list of ideas that may be worth a quick review while there is still time. And especially this year with recent tax law changes.