On March 20, 2025, the IRS released new FAQs covering the income tax reporting of Employee Retention Credit (ERC) claims. According to the IRS, taxpayers will no longer be required to amend a prior year income tax return to adjust the wage expense as a result of an ERC claim. Instead, taxpayers can report the adjustment as gross income on the income tax return in the year the ERC was received.

IRC 280C(a)

Before this guidance was released, practitioners were following IRC 280C(a) which required taxpayers to reduce their wage expense for any credits taken in the year the wage expense incurred, i.e., for 2020 ERC the wage expense for 2020 would need to be reduced.

Statute of Limitations

Additionally, in accordance with this new guidance, if the statute of limitations has not closed, taxpayers can still amend a prior year tax return to reduce their wage expense by the amount of the ERC claimed, or they can include the ERC in gross income on the tax return when the ERC is received.

Importantly though, the IRS asserts that if the statute of limitations for amending a prior year return is closed and the taxpayer did not reduce their wage expense, they will claim the ERC as gross income in the year it was received. The IRS warns in the FAQs that by not recognizing the ERC on a tax return, taxpayers “may be claiming an unwarranted double benefit.”

Disallowance

Lastly, the FAQs state that, if the IRS disallows an ERC claim, taxpayers can increase their wage expense in the year the disallowance is final, after the taxpayer has exhausted all efforts to receive their ERC claim.

Many taxpayers are still awaiting ERC payments from the IRS. While amended returns are no longer necessary, KT recommends taxpayers stay on top of their tax compliance to avoid adding an unnecessary hurdle to the ERC refund claim process. Taxpayers awaiting ERC processing should also continue to monitor their mail for refund checks or any related correspondence from the IRS.

If no notices related to a pending ERC claim have been received, you may want to contact, or have your KT Tax Advisor contact, the IRS to confirm the IRS has your claim on file.