Are amended returns in your future?
The IRS issued Notice 2021-49 on August 4, 2021, which changed things “after the fact” for many businesses.
Two items of note are:
“Related individual” ineligible wages for ERC (employee retention credit) includes a majority owner (i.e., a person with more than 50% ownership) of an entity if the majority owner has a brother or sister (whether by whole or half-blood), ancestor or lineal descendant. The spouse of a majority owner is also a related individual for purposes of the ERC if the majority owner has a family member who is a brother or sister (whether by whole or half-blood), ancestor, or lineal descendant. If wages for such ineligible employee were claimed for ERC, corrective 941X needs to be considered.
Employers must reduce wage expense by the amount of the ERC claimed – and this reduction must now must occur on the tax return for the year in which the underlying wages giving rise to the ERC. Accordingly, if an employer files a claim for the credit for a prior tax year, it must also file an amended federal tax return to reduce the amount of the wage deduction claimed in the corresponding period.