Am I Taxed on the ERC Refund?
Here are three ways this frequent question about an Employee Retention Credit refund is asked:
- “Do I have to pay taxes on the ERC refund? “
- “Does the amount become added back into my income? “
- “Is the government going to tax me on a refund that they issued me? “
Basically, it is the same question. And no, you are not taxed on the refund. (Not exactly.)
What Does That Mean, “Not Exactly”?
That refund is not really income. Instead, it represents a reduction in your payroll expenses.
On your business tax return from back in 2021 or whenever that refund was based, you deducted or “wrote-off” an amount for payroll tax expenses paid. It is possible that your tax bill was reduced for that write-off.
When the refund is received, you do have to reduce your payroll tax expense by the amount of the refund. You must change, or “Amend” your business income tax return for that write-off that you were paid back. In other words, you must “un-write off” that part of the payroll expense you were reimbursed.
Maybe that means an increase in your income taxes. But maybe it does not. That all depends on your tax return.
But if this becomes a problem that needs to be settled with the IRS, please let us know!