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Taxes On ERC: Key Information for Business Owners

A common question relating to the Employee Retention Credit (ERC) is about wether or not business owners need to pay taxes on the ERC checks they receive.

ERC is a tax refund, so it does not count as gross income. It is not considered income by the IRS so no taxes would be due on it. ERC is an amendment to the quarterly federal tax returns for your business.

ERC is calculated based upon the wages paid to qualifying employees within qualifying quarters of 2020 and 2021. It is a refund of taxes your business has already paid, which is why it is not considered income and would not be taxed further.

Your ERC amount may affect your taxes in 2020 and 2021 since it is a refund on payroll taxes in those years. However the money itself will not be taxed as income by the IRS. You would not be able to deduct the portion of the wages used to qualify for your ERC as expenses in the years 2020 and 2021. So it's important to understand that there is a potential difference in the amount of tax owed in 2020 and 2021 by qualifying for ERC.

So essentially ERC is not taxable as income, but it will have an effect on the deductions you can claim on your 2020 and 2021 taxes.


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