FAQs IRS added March 20, 2025 regarding Employee Retention Credit

Due to the COVID-19 pandemic and a spike in unemployment federal tax law was modified and the Employee Retention Credit (ERC) was born. The ERC was a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. The business, tax community and the Internal Revenue Service continue to deal with compliance aftermath of the ERC.

On March 20, 2025 the IRS updated their frequently asked questions about the employee retention credit in the section headed “Income tax and the ERC”.

https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit

The three added Q&A’s on 3/20/2025 appears to be good for business, tax preparers and the government. Prior to the changes explained in the updated Q&A the ERC rules typically meant that employers who received a ERC benefit would have to amend prior year business income tax returns to disallow wages that were the basis of the ERC cash the business received, often in a subsequent tax year.

The updated ERC FAQs now have provisions where the business may include the prior year overstated wage expense (due to the wages being reduced by the ERC) amount as gross income on their income tax return for the tax year when they received the ERC. The FAQ detail and examples can be found at the above link.

I expect this small change in a IRS procedure will eliminate a large amount of mostly useless work for all parties. I welcome a step in the direction of tax simplicity.