Mullins: Employee Retention Credit complications

Josh Mullins talks about Employee Retention Credits

Tax planning and effects of the pandemic are still on many business owners’ minds. As we continue into 2022, many business owners are still wondering if they will see the benefits of claiming the Employee Retention Credits from the 2020 and 2021 tax years. These credits were meant to allow employers whose businesses suffered during the pandemic to keep their employees working and maintain payroll.

The Employee Retention Credits began in March 2020 and continued through the end of the third quarter of 2021, and the rules changed multiple times. Many business owners filed for these credits in advance, but others filed and continue to file amended payroll tax forms to claim the credits.

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

As recently as May 2022, the IRS said it has 3.4 million unprocessed Employer’s Quarterly Federal Payroll Tax returns and an additional 287,000 unprocessed amended Employer Quarterly Federal Payroll Tax returns. The forms are being worked through. However, many of the amended payroll returns those employers have filed to claim employee retention credits are still potentially waiting on the originally filed payroll tax forms to be processed.

One other complicating factor with the tax treatment of the Employee Retention Credits is that the business must account for the credits in the quarter the credits were claimed, even if they haven’t received the refunds from the IRS. This could mean you have higher net income in the year you claimed the credits even if you haven’t received the money from those credits yet.

For some business owners, the opportunity to file an amended payroll tax return to claim the Employee Retention Credit for the qualified period is worth considering. However, keep in mind that the amount of time it could take the IRS to process those returns may be longer than you would like.

For individuals who are still waiting on personal tax returns to be processed, the IRS also published that it has over 9 million unprocessed individual tax returns. The large majority of those are returns that have been paper-filed, and the IRS continues to encourage all taxpayers to electronically file tax information.

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