One of the recurring notifications our office saw this past year was unemployment fraud.
There were numerous reported cases of scammers attempting to collect the unemployment benefits being offered by the government. Such scammers were filing false claims using stolen personal information. If this happened to you, be on the lookout for a form 1099-G issued by the state unemployment agency and reporting benefits paid out to you that were actually never paid to you. Taxpayers will need to contact their issuing state agency to report the error and to have a corrected 1099-G issued noting $0 of unemployment benefits paid to them.
If this issue is not corrected, the IRS will be looking for this inaccurate amount of reported income to be included as taxable income on the taxpayer’s 2020 income tax return and will issue a tax notice for unreported income to the taxpayer if not resolved prior to filing taxes.
Just checked the IRS website to read about the updated Employee Retention Tax Credit (ERTC) rules at: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act, and was greeted by this message:
Note that the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, amended and extended the employee retention credit (and the availability of certain advance payments of the tax credits) under section 2301 of the CARES Act. These FAQs do not currently reflect the changes made by the Taxpayer Certainty and Disaster Tax Relief Act of 2020; however, please continue to check back on this page for any updates related to the change in law.
That’s a problem. The IRS has had more than two full months since the rules were revised back in December to provide guidance on how to coordinate the PPP loan forgiveness with the calculation of the ERTC. To further complicate matters, the instructions for the 1120S clearly states:
[The ERTC] reduces the amounts reported [for officer and staff wages] on lines 7 and 8 by the nonrefundable and refundable portions of the new CARES Act employee retention credit claimed on the corporation’s employment tax return(s).
This implies that practice owners planning to file for the ERTC need to:
- File for PPP Loan forgiveness to figure out the wages for Q2 and Q3 2020 available for the ERTC
- Figure out the ERTC Credit, and submit the amended 2020 payroll tax forms to claim the credit
- Adjust the deduction for salaries and wages by the amount of the credit claimed
- File the practice’s 2020 tax return with the correct deduction for salaries and wages
- File the owner’s 2020 personal tax returns showing higher practice income for reduced wages
Yes, it’s a mess. We were hoping that the IRS would provide guidance allowing the credit to be claimed in 2021 even though the credit will be for wages paid in 2020. We were also hoping that that amount of the ERTC could reduce the deduction for 2021 salaries and wages instead of 2020 wages.
Until more guidance is issued, we’ll continue to finish up the business tax returns for our clients, and then at some point, finalize their personal tax returns too. If we file tax returns that later need to be revised, that’s fine. Remember, you always have three years from the return’s due date (or filing date for returns on extension) to submit amended tax returns.
One more wrinkle. There is a chance the government will announce this week that the filing deadline will be extended to 6/15/21. Stay tuned.