Your ERTC refund check arrived. Now what?
As a result of COVID-era legislation designed to alleviate the negative impacts on American businesses brought about by government shutdowns and other restrictions, thousands of businesses have received or are set to receive tax refunds via the Employee Retention Tax Credit.
Because refundable tax credits don’t regularly factor into many business’s annual tax plan, the distribution of ERTC checks leaves some asking questions about reporting requirements.
It is critical to consult with qualified tax professionals regarding any and all business tax concerns.
This blog gives answers to some commonly-asked questions regarding ERTC refunds.
Is my ERTC refund considered taxable income?
Yes.
In which tax year do I report my ERTC refund?
You must amend your business tax return from either 2020 or 2021, or both, to accurately report the change in your tax liability created by your ERTC credit(s).
The return you must amend is determined by the period during which your business was determined to be eligible for the ERTC. Businesses determined to be eligible for the ERTC during 2020 must amend their 2020 business tax return; businesses determined to be eligible for the ERTC during 2021 must amend their 2021 business tax return; businesses determined to be eligible for the ERTC during both 2020 and 2021 must amend both their 2020 and 2021 business tax returns.
What is the deadline for reporting my ERTC refund?
You must report your ERTC refund in a timely manner. Significant reporting delays raise the likelihood of an audit.
Isn’t there a three-year statute of limitations for amending my tax return?
Internal Revenue Code Section 6511(a) provides for a three-year statute of limitations on filing a claim for refund due to an overpayment. However, there is no statute of limitations on correcting an underpayment.
Because reporting your ERTC refund as received income corrects an underpayment, the statute of limitations does not apply.
My business is cash-based. What now?
Even if your business practices cash-based accounting, meaning it recognizes revenue and expenses only when money changes hands, the rules for reporting your ERTC refund as taxable income still apply.
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If we helped you claim your ERTC refund, we support you from beginning to end.
We understand that your ERTC refund is important, and our team of tax experts is ready to help you receive and understand it in any way we can.
You may find our latest update regarding when you might expect to receive your ERTC refund here.