IRS Releases Updated FAQs to Provide Guidance on Employee Retention Credit (ERC) Taxability

With the deadline for submitting Employee Retention Credit (ERC) claims now closed, the IRS is working through approximately 597,000 outstanding claims. As a result, businesses are receiving either reimbursement payments or official notices of disallowance, specifically, IRS Letter 105-C or Letter 106-C.

These developments have prompted numerous questions from taxpayers regarding how to proceed after receiving either a refund for qualified wages or notification that their ERC claim was denied.

To provide guidance, the IRS has issued updated Frequently Asked Questions (FAQs) that address several key scenarios, including:

1. Adjustment of Wage Expenses: Should businesses have reduced wage expenses on their income tax returns when filing an ERC claim?
2. Subsequent-Year Reimbursements: What steps should be taken if an ERC was claimed, but wage expenses were not reduced on the original tax return, and the credit was paid in a later year?
3. Claim Disallowance After Expense Reduction: What actions are necessary if the IRS disallowed an ERC claim, but the business already reduced wage expenses on its tax return?

These FAQs offer detailed instructions based on the IRS’ position tailored to these and other common situations. This is an evolving issue that we are actively monitoring. We will continue to keep you updated.

For assistance in navigating your unique circumstances related to the ERC, we encourage you to contact your BMSS advisor. You can reach us by calling (833) CPA-BMSS or visiting our website for additional contact information.