How to report ERTC refund checks
I operate a C Corporation and file IRS form 1120 to report income. In June of 2023 I applied for the Employee Retention Tax Credit (ERTC). I amended my employer's quarterly federal tax return IRS form 941's for years 2020 and 2021. I received the ERC refund checks in 2025. How do I report the refund I just received? Since I amended the IRS form 941, do I have to go back and amend my form 1120 tax returns for years 2020 and 2021?
Quick Answer:
Yes, you must amend your Form 1120 tax returns for 2020 and 2021.
The Employee Retention Credit (ERC) is treated as a reduction of your deductible wage expense. For income tax purposes, this reduction must be applied in the tax year the wages were paid or incurred, not in the year the credit is received.
Since you claimed the ERC for wages paid in 2020 and 2021, your deductible wage expense for those years is reduced by the amount of the credit. This means your taxable income for 2020 and 2021 was understated on your original Form 1120 filings.
You will need to file Form 1120-X, Amended U.S. Corporation Income Tax Return, for both 2020 and 2021 to reflect the decrease in your wage deduction. The receipt of the refund checks in 2
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
