How Can I Prepare My Taxes to Claim the ERTC? 

December 11, 2023
Dayes Law Firm

Preparing your tax returns correctly is important for accurately claiming the Employee Retention Tax Credit (ERTC). While you’ve probably already filed your 2020 and 2021 tax returns, you can submit an amendment for each quarter you’d like to claim the ERTC. But before you do, ensure you understand how to accurately claim this credit and avoid tax penalties. 

Review these tips for tax preparation for your ERTC claim. 

Accurately Calculate Your Credits 

When you file your amended payroll tax returns for 2020 and 2021, you must indicate the tax credits you’re eligible for through the ERTC. Ensure you accurately calculate your credits, thoroughly review the guidelines, and double-check your math to avoid errors. 

Your calculation will vary depending on whether you had more or fewer than 500 employees in 2020 and 2021. If you had fewer than 500 employees, you can claim all qualified wages paid to full-time employees, with a maximum of $10,000 per employee. The ERTC offers a credit of 70% of wages, giving you up to $7,000 per employee per quarter. 

If you still need to file for 2020 as well, your calculations will look different for this tax year. The calculation rate is 50% instead of 70%, while the cap is still $10,000 per employee. 

Ensure you understand all calculation rules as part of tax preparations for your ERTC claim. 

File an Amended Payroll Tax Return (Form 941-X)

After calculating your credits, you can begin filling out Form 941-X for each quarter your business was eligible for the ERTC. You can claim this credit for all four quarters of 2020 and the first three quarters of 2021. 

You can file your amended tax return until three years after the original return filing date. This means the deadline for 2020 tax returns is April 15, 2024, while the deadline for 2021 is April 15, 2025. 

You can download Form 941-X from the IRS website and access instructions for filling it out. On this sheet, you’ll need to indicate which tax return you’re correcting, check the quarter you are amending, and enter the refundable portion of the ERTC you’re requesting, among other tasks. 

There is no electronic option for submitting Form 941-X. You’ll need to submit it through the mail.

Adjust Your Income Tax Return

Filing for the ERTC will impact your income tax return. While these credits aren’t taxable income, they do create a reduction in wages for the year they were paid. This is because you’re claiming a credit back for the wages you paid to employees. 

You’ll need to amend your tax returns for each year you took the ERTC to adjust your deduction for wages. This is a step many businesses overlook, but failing to do so could lead to tax penalties. 

Work With a Tax Professional 

Accurate tax preparation for your ERTC claim may seem overwhelming. You must ensure every detail on your amended tax returns is accurate to avoid negative consequences. But because 2020 and 2021 are already several years behind us, you may have trouble gaining accurate information about your cash flow management or even knowing how to navigate a retroactive tax return. 

That’s why businesses typically work with tax professionals to claim the ERTC for them. A CPA or tax attorney can ensure the accuracy of your claim and maximize the credits you’re eligible for. 

Dayes Law Firm: Your ERTC Guides

At Dayes Law Firm, we’re committed to helping businesses navigate tax preparation for their ERTC claims. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation