Where do I record my Retention Credit Deposits?

[MattKing]

I received Retention Credits for 2021 but am sure how the deposits should be recorded.

[carolineb]

Hi @MattKing, 

The ERC is a refundable tax credit, and it is not added to your gross income when you file your federal income tax return. But even though your ERC refund is not added to your gross income, it will still impact your taxable income. This is because it will reduce the deduction you write off for wages and salaries. As an employer or business that receives the employee retention credit, you must reduce your payroll expense deduction by the amount of the ERC claimed.  Here is a link that you may find helpful in answering your question: Employee Retention Credit FAQs 

[KochuK]

Hi MattKing, thank you for posting an event question.

Believe you refer to Employee Retention Credit.

Please refer to the section of Claiming the ERC, Q1 and Q2 as follows:

Q1. How do I claim the ERC? (added July 27, 2023)

A1. Eligible businesses that didn't claim the credit when they filed their original employment tax return can claim the credit by filing an amended employment tax return. For example, businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for RefundPDF, to claim the credit for prior 2020 and 2021 quarters.

Reminder: If you file Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit for that same tax period. Therefore, you may need to amend your income tax return (for example, Forms 1040, 1065, 1120, etc.) to reflect that reduced deduction.

Q2. Is there a deadline to claim the ERC? (added July 27, 2023)

A2. Generally, for 2020 tax periods, the deadline is April 15, 2024. For 2021 tax periods, the deadline is April 15, 2025.

Frequently asked questions about the Employee Retention Credit (IRS)

https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit 

I hope the above helps.

Thank you,

Kitty

[Loretta P]

Hello @MattKing that's a great question.  

As this credit can be taken against the employer's share of Social Security taxes. It's a fully refundable credit that can be claimed on Form 941. Form 7200 may be used to request an advance payment of employer credits if the employer's share of Social Security taxes isn't high enough to immediately use the entire credit amount.

 Payroll Tax Credit and Other Stimulus Programs for COVID-19

Stimulus 2021: Self-Employed Tax Credits and Social Security Tax Deferrals Available During COVID-19

The Employee Retention Credit (ERC) is not taxable income; however the ERC will affect what payroll deductions you can claim.  If you received the ERC you must reduce your payroll expense deduction by the amount of the credit.  If you file Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit for that same tax period. Therefore, you may need to amend your income tax return (for example, Forms 1040, 1065, 1120, etc.) to reflect that reduced deduction.

Frequently asked questions about the Employee Retention Credit