Reporting the ERC on Form 1120-S

[PEFIN]

Since the ERC is a refundable credit that is associated with payroll adjustments in prior tax year(s), does the IRS require amending the prior year return?

Does the taxpayer have the option to report the ERC as taxable income in the year the refund is received in lieu of amending the prior year?

[JulieS]

Yes, when you receive an Employee Retention Credit (ERC) for a prior year, you have to amend the prior year return and reduce your wage deduction by the amount of the ERC received. 

You can amend your prior year 1120-S in TurboTax Business:

1. Open the TurboTax Business program for the year you need to amend. 
2. Before you make any changes, select File and Save As... then add Amended 20XX return to the file name to preserve your original return.
3. Select Online and Check for Updates. Allow the program to update if any are available.
4. Select the Federal Taxes tab, and then select Other Tax Situations. You might be asked to answer a few preliminary questions before you see a list of categories. 
5. Scroll down to Other Tax Forms select Start next to Amend a Return.
6. On the We’ll help you change (amend) your return screen, select Continue.
7. On the Did you already file your return? screen, select Yes, I’ve already filed my return. 
8. Follow the steps to start your amended return.
9. Select the Forms icon toward the upper right.
10. Highlight Form 1120-S in the list on the left.
11. Find the Salaries and Wages (less employment credits) Smart Worksheet. 
12. Enter the amount of ERC for this year on line G. 
13. Select Step-by-Step toward the upper right.
14. Select the Federal Review tab.
15. Continue through Federal Review and follow the steps to complete your amended return.