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IRS Releases FAQs on Wage Adjustments For ERC Claims

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We have waited a long time for information on how taxpayers who claimed the Employee Retention Credit should handle wage adjustments on their income tax returns for delayed ERC claims, claims that were partially denied, or claims that were approved but received after the statute of limitations. Finally, it's here!

 

On March 20, 2025, the IRS updated its ERC FAQs, providing much-needed clarity and flexibility regarding how and when businesses should adjust wage expenses related to their ERC claims.

 

Key IRS FAQs for ERC claims:

1. Timing Flexibility for Wage Adjustments- Businesses now have the option to adjust wage expenses on their income tax return in the year the ERC claim is either allowed or denied. This clarification is particularly important as many taxpayers are still awaiting approval on their delayed ERC claims, but the statute of limitations for amending 2020 tax returns has passed and the 2021 statute is closing on April 15, 2025.

 

2. Background on Wage Deduction Limitation- The IRS maintains that businesses must reduce their wage deduction by the amount of the ERC. This prevents businesses from benefiting from both a tax credit and a deduction for the same wages.

 

What This Means for Your Business:

  • If your ERC claim is allowed: You may reduce the related wage expense in the year the ERC is received, if it was not previously adjusted on your 2020 or 2021 return.

  • If your ERC claim is denied in full: No wage adjustment is required.

  • If your ERC claim is denied but wage adjustments were already made on your 2020 or 2021 return: You can increase your wage expense in the tax year when the denial is finalized.

  • If your ERC claim is partially denied: Wage adjustments should only reflect the approved portion of the credit.

 

Next Steps for Businesses that Claimed the ERC:

If you have any questions about how these IRS FAQs for ERC claims impacts your specific business or personal income tax returns, we suggest you reach out to your CPA. 


Has Your Business Missed Claiming the ERC?

There may still be time to claim the Employee Retention Credit for eligible businesses and nonprofits. Please contact Tax Credit Collective at (214) 414-9881 or visit www.taxcreditcollective.com/claim-the-erc.


 
 
 

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