Is the Employee Retention Credit Taxable Income?

  1. Home
  2. »
  3. ERC
  4. »
  5. Is the Employee Retention Credit Taxable Income?

Whether or not you’ve filed for ERC yet, you are probably wondering whether or not receiving Employee Retention Credit is taxable income. If you aren’t familiar with what ERC is, it’s a reimbursement grant from the government to reward businesses for keeping folks employed during COVID. It’s a way to push an influx of funds into your company when you need it most. However, when you’re expecting that financial boost, paying taxes on it is the last thing you need to worry about—or is it? Here’s what you need to know about your taxable income.


How do I claim my ERC?

If you haven’t filed yet for Employee Retention Credit, it’s not too late. However, you should do it as soon as possible to receive your business’s reimbursement. Bottom Line Savings can help you determine your eligibility and request funds on your behalf to get your credits even sooner and without hassle.

Read more: How to claim the Employee Retention Credit.

Is my business eligible for ERC?

You could receive a tax credit if your business kept workers employed during COVID-19’s mandated closures. You must prove that you paid your employees and experienced a 50% loss of revenue to file for 2020 and a 20% revenue decrease during the first three quarters of 2021 to file for that year. There are a few other stipulations to receiving credits, such as whether or not you received PPP loan forgiveness during 2020, which won’t impact your 2021 eligibility.

Read more: How to Know if You Qualify for an ERC

Is Employee Retention Credit considered taxable income?

In short, it’s not regarded as taxable income according to IRC Section 280C. However, receiving ERC will impact your overall tax return and your business’s bottom line. You will also need to claim the Employee Retention Credit on your payroll tax return instead of your income tax return.

Do I add the ERC to my gross income?

Because it’s a grant and not considered income, you don’t add your tax credits to your gross income. Instead, you need to deduct the reimbursement from your payroll expenses.

How will receiving ERC impact my tax return?

Employee Retention Credit does influence the amount of your tax refund. Although you don’t have to pay taxes on it, it is deducted from your payroll expenses. For example, if you paid $200,000 in wages and received a $15,000 ERC, the total payroll you could claim would be the difference between the two or $185,000. So, effectively, the Employee Retention Credit reduces the amount of wage expenditures you can claim on your business tax return.

How to report Employee Retention Credit on my tax return?

Again, the ERC impacts your bottom line, which your annual tax return to the IRS should reflect. Therefore, you should record the amount of credit you receive as a deduction from your total payroll expenses. Be sure to add the Employee Retention Credit amount as a line item on the form where you record the Payroll Gross Pay. It’s relatively simple to calculate and report.

What if I didn’t file for ERC?

Of course, if you neglect to file for or claim your ERC, you don’t need to worry about putting it on your return. However, your business should claim what is rightfully yours if you qualify. If you need help seeing if you qualify, calculating the amount of your Employee Retention Credit, or otherwise have questions, Bottom Line Savings is here to help you get started today.

Scroll to Top