By Ian Williams | Principal, Research & Development Tax Credits
April 15, 2025, is the final filing deadline for any 2021 Employee Retention Tax Credit (ERC or ERTC) claims. The deadline to file any 2020 ERC claims was April 15, 2024. While the IRS continues to make progress on its backlog of claims, many taxpayers have been waiting for two years or more for their claims to be processed. CPAs and taxpayers should consider the upcoming expiring statutes for 2021 tax returns with respect to the requirement to amend tax returns associated with ERC refunds.
KBKG Insight:
Taxpayers with 2021 ERC claims that have not yet amended their 2021 tax returns should consider the following options with their tax preparers: 1) file an amended 2021 tax return before the statute closes to comply with ERC laws, and consider 2) filing a protective claim before the statute closes to protect the deduction in the event any portion of the refund claim for ERC is disallowed.
Background
Amended Tax Return Requirements
The ERC program required taxpayers to amend their original tax returns to ensure they weren’t claiming deductions and refundable credits on the same wages. Specifically, 2021 ERC claims require an amended 2021 business tax return to reduce the salary and wage deductions by the total amount of credits claimed associated with 2021 quarters.
The combination of the backlog in IRS processing and the filing statutes expiring for 2021 amended returns creates a potentially unfavorable scenario for taxpayers, as described below.
Scenario: Under current law, if the IRS denies ERC credits after the 2021 corporate tax return statute expires, there is currently no method for recovering the lost wage deductions. There was language in the H.R.7024 legislation (Tax Relief for American Families and Workers Act of 2024) that would have extended the statute for those amended returns and alleviate this problem, but that bill did not pass, and we have not seen this language in any proposed legislation. Based on current law, the only method to protect these deductions would be the following:
- File an amended 2021 tax return to reduce wage deductions by the amount of the credit.
- File a concurrent protective refund claim to reinstate the wage expense deduction if the IRS denies the ERC claim.
While this is a cautionary measure, we recommend taxpayers consult with their tax preparers to determine if this approach is right for them.
The same filing requirement existed for 2020 amended tax returns related to 2020 ERC claims, but those filing statutes expired in 2024. There are examples of taxpayers filing a 2020 amended return with a tax payment after the statute expired and having the amended return and tax payment rejected by the IRS. As of now, the IRS has not released any official guidance for what taxpayers should do in that situation.
ERC Moratorium and Processing Update from the IRS
The moratorium on processing claims filed after January 31, 2024, is still in place. The ERC program is still active, and claims for 2021 periods can be filed through April 15, 2025, but expect significant processing delays and additional scrutiny from the IRS on any claims filed after that date.
The IRS continues to process the backlog of claims, including those filed during the initial moratorium period (September 14, 2023, through January 31, 2024). The IRS has not published any updates on how the recent layoffs might affect their processing times.
Conclusion
KBKG recommends taxpayers stay on top of their tax compliance to avoid adding an unnecessary hurdle to the ERC refund claim process. While there is still hope for additional guidance and clarity from the IRS, a protective claim is one potential safeguard to protect the tax deductions related to ERC claims.
Taxpayers awaiting ERC processing should also continue to monitor their mail for refund checks or any related correspondence from the IRS. If no notices related to a pending ERC claim have been received, call the IRS with these instructions to confirm the IRS has the claim on file.
For years, KBKG has been at the forefront of specialized tax programs like ERC, establishing itself as an industry leader in areas like the Research & Development Tax Credit, 179D Tax Deduction, Cost Segregation, and other tax incentives. These value-added solutions are why CPAs and businesses have continually trusted KBKG’s expertise and services. Reach out and see which solutions you can benefit from.
About the Author
Ian Williams | Principal – Research & Development Tax Credits
Ian Williams is a Principal for KBKG, specializing in Research & Development Tax Credits and Employee Retention Credits. Ian spent eleven years at a Big Four accounting firm specializing in R&D tax credits and fixed asset studies across a variety of industries. He has extensive experience in. Read More