Employers whose request for forgiveness of PPP Loan has been denied may claim the Employer Retention Credit related to those wages. The IRS has acknowledged that this guidance is being provided late. It is noted that taxpayers are not required to use the following fourth quarter procedure, but may instead opt to file a Form 941-X to adjust a return or claim a refund for the appropriate quarter.
The Post-Release Change clarifies that PPP borrowers who received a PPP loan that included wages paid in the second and/or third quarter of 2020 as payroll costs to claim loan forgiveness whose request for forgiveness is denied, may claim the ERC related to those qualified wages on the 4th quarter Form 941 (Employer’s Quarterly Federal Tax Return) for 2020. Additionally, the employer may report any qualified health expenses that are qualified wages not previously included on the 2nd and/or 3rd quarter Form 941 of 2020.
In order to claim the ERC, taxpayers who opt to use this limited fourth quarter procedure must add the ERC attributable qualified wages and health expenses of the second and/or third quarter on line 11c or line 13d (as relevant) on the original fourth quarter Form 941 (along with any other ERC for qualified wages paid in the fourth quarter).
Additionally, to claim the ERC, the filer must:
- Include the amount of these qualified wages paid during the 2nd and/or 3rd quarter (excluding health plan expenses) on line 21 of your original 4th quarter Form 941 (along with any qualified wages paid in the 4th quarter)
- Enter the same amount on Worksheet 1, Step 3, line 3a.
- Include the amount of these health plan expenses from the 2nd and/or 3rd quarter on line 22 of the 4th quarter Form 941 (along with any health expenses for the 4th quarter)
- Enter the same amount on Worksheet 1, Step 3, line 3b.
Written by: Erin Kidd, EA
Erin Kidd is the Tax Individual Practice Supervisor at Thompson Greenspon and has nearly a decade of tax experience specializing in individual taxation. Throughout her career, she has focused on simplifying complex tax issues and educating clients to maximize their tax benefits and plan for future events. Erin is responsible for the review of individual Federal and multi-state tax returns, managing the firm’s Military Spouse Remote Preparer Program, preparation of individual tax returns with international taxation and reporting requirements, and assisting with the resolution of client issues with Federal and State Taxing Authorities.
Erin holds a Bachelor’s and Master’s Degree in Business Administration from Morehead State University, is an Enrolled Agent, a federally licensed tax preparer who has unlimited rights to practice before the IRS, and an Accredited Financial Counselor ®. She has been recognized by the Garrison Commands of West Point, NY and Fort Leavenworth, KS for her contributions to the military community for her work with the installations’ Volunteer Income Tax Assistance Centers.
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