Understanding Tax Treatment of the Employee Retention Credit

The Employee Retention Credit (ERC) gave many businesses impacted by COVID-19 the opportunity to file payroll tax refund claims for a much-needed infusion of cash to keep their businesses running. Now, as the 2021 tax filing season kicks off, businesses are wondering about the income tax treatment of the ERC.

In this analysis, OMA Connections Partner GBQ Partners writes that based on IRS guidance, the ERC is not included in a taxpayer’s income. However, an employer must reduce its wage expense for the ERC, effectively increasing taxable income by the amount of the credit. 1/24/2022