Where do you record the ERC on the 1120S?

[toddcrab]

I use TurboTax for business, S-Corp/1120S, and I expected the software to ask if the company received any Employee Retention Credits, and it didn't, ugh!

No where does the software even mention the ERC, and I imagine a lot of businesses received it . . . so, where should it be recorded on the 1120S?  Do you simply subtract the credits from total wages - under the "Salaries and Wages Paid" section of deductions?  My concern here is that the wages reported will be a lot less than the wages reported on the company W-3.  I just thought there would be a specific place to record the credit.

Help!

[Anonymous_]

Perhaps the following thread will help.

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/employee-retention-cred...

[PatriciaV]

No, you should not reduce wages, as the Employee Retention Tax Credit (ERTC) reduces payroll tax payments (not wages). The wages you report on Form 1120S Lines 7 & 8 should match your W-3. 

Further, the ERTC was actually claimed on the company's Form 941 quarterly payroll tax reports as a credit for employer taxes. You should report the actual taxes paid during the tax year on Line 12, which should match your 941's for the year.

The credit taken is reported to the shareholders on Schedule K1, Line 13g (Code P Other Credits).

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

[toddcrab]

Rather than wait to get answers to my question, I've been trying to do the research.  The link you provided me referenced an article from 2020 - and a lot of guidance has been issued since then.  The 941 is used to get the credit, and my company received large ERC refund checks because of those 941's, but my understanding is when it comes to filing income taxes (not payroll taxes via the 941), those credits need to be accounted for on the 1120S.  The instructions for the 2021 1120S has this excerpt; so according to this, my thinking is that I reduce the amount of wages by the amount of ERC received via the employment tax returns (for me, that's the 941's).  Does this sound correct to everyone?

Instructions 1120S pg16 - line 8 salaries & wages

[Seattlehiker]

Line 7 and 8 on the 1120S is where it goes. I would make sure you spike in out in the worksheets in case you are sadistic and want to someday tie back to the 941. Folks and all you high-level Intuit power uesers, it is pretty clear in the IRS instructions. I have not been a practicing CPA for 15 years now, but still do my own taxes and keep up with most of the arcane BS that is still permeating our tax code that both major political parties claim to want to simplify. However, I am amazed at these so-called payroll experts and CPAs that want to spit this out on a K-1 (through code P on 13g sched K) to the shareholder (s). The effect on the 1040 of the owners is nil either way because either the credit flows through or the higher net income does via reduced wages from line 7 and 8. I hope this helps.

[AgaCPA]

Love it! 

[Seattlehiker]

Ha ha, yes, thanks-CPAs and ex-CPAs with a sense of humor. Seriously, and ridiculously, if I am not going up Tiger Mt this evening with my pup, I'll try to post some screenshots...No, I am not thinking of reactivating my license. It's been too long.

[LARU]

I can add some information that I have copied from the 1120s Instructions:

Line 12. Taxes and Licenses

Do not reduce your deduction for social security and Medicare taxes by the following amounts claimed on the corporation's employment tax returns: (1) the nonrefundable and refundable portions of the employee retention credit, and (2) the nonrefundable and refundable portions of the FFCRA credits for qualified sick and family leave wages. Instead, item (1) reduces your deduction for wages on lines 7 and 8, and item (2) must be reported as income on line 5.

[tkeet34579]

In terms of tax benefits, Credit > Deduction, hope that helps.

[YPena]

If the credit is recorded on Schedule K1, Line 13g (Code P Other Credits), when input on Form 1040 of the taxpayer return this line item gives a tax credit to the taxpayer on Form 3800, decreasing the tax due which is not correct. The credit was taken at the business level, and it should not give any additional credit at the personal level. Please advise.

[tkeet34579]

Just so we're clear, everything is reported at the business level. What the schedule K-1 does is passes out the individual taxpayer's portion of what was reported at the business level. Everything reported on an individual shareholder or partner's schedule K-1 should be reported on their tax return. 

[YPena]

I understand that, but this is a non-taxable credit and if input on Line 13, code "P" is giving the tax payer a tax credit, in my clients case of over $11,000.

[tkeet34579]

That's right, now I remember... the business return should not be throwing off a credit. The credit was on payroll taxes, so that expense should decrease by the amount of the credit and the taxpayer should have more income to recognize because of the amendment. Good Luck!

[Mountain Girl]

If the credit is based on 50% (2020) and 70% (2021) of qualifying wages then the ERTC refund would be more than the employer payroll taxes paid.

[HopeS]

Report ERC on Form 1120-S to reduce wages on lines 7 and 8 will flow to Schedule K-1 Line 13 using code P (Other Credits,) passing to Form 5884-A.

Please send a question if this does not help you.

@Mountain Girl