Mullins: Employee Retention Credit Complications

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Josh Mullins

Tax planning and the effects of the pandemic are still on the minds of many business owners. As we continue into 2022, many business owners are still wondering if they will see the benefits of claiming the 2020 and 2021 tax year employee retention credits. These credits were intended to allow employers whose businesses have suffered during the pandemic to keep their employees at work and maintain the payroll.

Employee retention credits began in March 2020 and continued until the end of the third quarter of 2021, and the rules have changed several times. Many business owners have applied for these credits in advance, but others have filed and continue to file amended payroll tax forms to claim the credits.

Companies filing the amended forms had already paid payroll taxes and are seeking a refund of those taxes. Unfortunately, many business owners are still waiting for these funds to be issued by the Internal Revenue Service.

As of May 2022, the IRS said it had 3.4 million unprocessed quarterly federal employer tax returns and another 287,000 amended quarterly federal employer tax returns. untreated. Forms are under development. However, many of the amended payroll statements that these employers have filed to claim employee retention credits are still potentially waiting for the payroll tax forms originally filed to be processed.

Another factor that complicates the tax treatment of employee retention credits is that the business must account for the credits in the quarter the credits were claimed, even if it has not received refunds from the IRS. This could mean that you have a higher net income in the year you applied for the credits, even though you have not yet received the money for those credits.

For some business owners, the option of filing an amended payroll tax return to claim the employee retention credit for the qualifying period is worth considering. However, keep in mind that the time it takes for the IRS to process these returns may take longer than you would like.

For people who are still waiting for their personal tax returns to be processed, the IRS also released that it has over 9 million unprocessed tax returns. The vast majority of these are returns that were filed on paper, and the IRS continues to encourage all taxpayers to file their tax information electronically.

Josh Mullins, CPA, is a partner at Arledge, an accounting firm based in Edmond. Arledge is a recognized leader in the accounting industry providing practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.

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