Employee retention credit?

[xmasbaby0]

This is not live chat.   Please ask a clearly worded complete question so someone will know how to help.

[blake141516]

I just did my taxes with turbo tax n I didn’t see the retention credits. Why is that?

[AmeliesUncle]

It seems like you don't know what the Employee Retention Credit is.  It is a PAYROLL credit, done on your PAYROLL tax forms, not your income tax forms.

[resale1]

I have the same question.  Where to I report the ERC that I received in 2021 on my tax return?   Do I subtract it from my wages?  Then my wages wouldn't equal the amount on my W-3.  

[LenaH]

The employer’s aggregate deductions for wages must be reduced by the amount of any employee retention credit received. Your gross wages will not match your W-3, but per the IRS, the credit is to reduce expenses, rather than be included in income. 

Per the IRS, section 2301(e) of the CARES Act provides that rules similar to section 280C(a) of the Internal Revenue Code (the "Code") shall apply for purposes of applying the Employee Retention Credit. Section 280C(a) of the Code generally disallows a deduction for the portion of wages paid equal to the sum of certain credits determined for the taxable year. Accordingly, a similar deduction disallowance would apply under the Employee Retention Credit, such that an employer's aggregate deductions would be reduced by the amount of the credit as result of this disallowance rule.  

 An employer receiving a tax credit for qualified wages, including allocable qualified health plan expenses, does not include the credit in gross income for federal income tax purposes. Neither the portion of the credit that reduces the employer's applicable employment taxes, nor the refundable portion of the credit, is included in the employer's gross income.

COVID-19-Related Employee Retention Credits: Special Issues for Employers FAQs

@resale1

[toddcrab]

Hello LenaH,

Thanks for sharing.  I found this info, too, on the IRS website.  I have two follow-up questions: 1) It appears that the credit should be recorded on a company tax return in such as way as to REDUCE company expenses, equal to the amount of the ERC credit, thus having the effect of increasing taxable income, correct?

2) I am using turbotax for business (S-Corp) and filing an 1120S.  I expected the tax software to prompt me with a question, "Did you receive any ERTC?"  But it did not.  Where, then, should the credit be recorded?  It didn't make sense for me to reduce the wages paid during the year, mostly because there is a warning that the wages reported must equal what's on the filed 941's.  There was also no where to post the credit as a deduction.  Therefore, I just added it under "Other deductions - Line 19 on 1120S," and entered the value as a negative number, thus reducing all the other deductions.  Does this sound correct to you?  Can you offer an explanation why the Turbo Tax software wasn't more specific on where to record the credit?  Or, am I off completely, and I'm not supposed to report the received credits on my 1120S?  Bottom line: Where does this credit go?

[PatriciaV]

1. Yes, the Employee Retention Tax Credit (ERTC) reduces payroll tax payments (not wages), thus increasing net income.

2. The ERTC would have been claimed on the company's Form 941 quarterly payroll tax reports as a credit for employer taxes. Report the actual taxes paid during the tax year. The credit taken is reported on Schedule K1, Line 13g (Code P Other Credits).

For more info, see Reporting CARES Act Employee Retention Credit on Form 1120-S

[hchan10881]

How do I report the credit amount on Schedule K1, Line 13g (Code P Other Credits)?  I didn't see any prompts or fields about employee retention credit 

[AliciaP1]

When you enter your K-1 you will mark you have information in box 13 then will enter the code and amounts when prompted.  You can see Where do I enter a K-1 that I received? for more information.

@hchan10881

[Phil52]

I found a place that looks where it may go. Form 1120S p1-2 section 7 line C is Employee Retention Credit for Employers. This is where I put my credit

[Digger109]

Phil52, you probably know this, but, for the record, that line pertains to a non-COVID related Employee Retention Credit (one associated only with Form 5884-A).