IRS Provides Updated Guidance on ERC Issues

The IRS just updated their FAQ page on ERC for some income tax related questions.

Photo by Werner Sevenster on Unsplash

The IRS updated their ERC FAQ for three items related to income taxes and ERC and the guidance is actually fairly helpful.

They added three FAQs in the section titled Income Tax and ERC.

The bottom line is that instead of having to file an amended tax return or an administrative adjustment request (AAR), you can simply adjust the current year tax return.

There are two situations listed:

1. 1. You claimed the ERC but did not reduce your wage expense by the amount of the credit. Technically, you were required to reduce wage expense in the year of the credit (either 2020 or 2021) even if you prepared and received the credit in a future year. Instead of filing an amended tax return or AAR, the IRS is allowing you to simply reduce wages in the current year.

2. 2. You reduce wages but never received the credit or will not receive the credit. In this case, you can simply add the amount of wage reduction to current year wages and deduct it then.

Both of these options are administratively much easier to handle than an amended tax return and in the case of reporting the wage reduction, eliminates having to pay interest and pay someone to file an amended tax return or AAR.

If this applies to your situation, the IRS has made it easier to get in compliance. That does not always happen.