Do you need to amend your 2021 tax return for the 2021 ERC?

If the IRS requires you to amend the 2021 tax return for 2021 Employee Retention Credit (ERC), if you filed the claim a long time ago, but the IRS has not sent you the money and you are in a dilemma since:

- The statute of limitations on the 2021 federal tax return expires on March 15, 2025
- You think you may not get the money and don’t want to amend the 2021 May return and pay additional taxes to the IRS
- Suppose you don’t file the amended return and receive the money after March 5, 2025, the statute of limitations will preclude the amended return. The sum is $500,000.

The answer to the above problem is to get the road map right.

Under Section 2301(e) of the CARES Act, you apply IRC Section 280C(a), which tells you to reduce the 2021 wages by the ERC calculated for the year 2021.

You should have reduced the 2021 wages by $500,000 when you filed your Form 941-Xs claiming the ERC. If you did not do it, you have to file the amended return before the statute of limitations expires on March 15, 2025.

If you have filed the 2021 tax return later than March 15, 2022, it would have been three years from the date to amend the 2021 return. For example, if you extended the return and filed it on September 1, 2022, he will have time till September 1, 2025, to file the amended return.

Cash Problem

If you have cash issues, you may have to borrow the money from a friend or bank or enter into a payment agreement with the IRS.

Protective Claim

You also need to protect yourself in case the IRS rejects your claim or part of it. You do this by filing a protective claim.

With the protective claim, if you don’t receive the $500,000 ERC or some lesser amount, you can further amend the amended return to increase the wage deduction and obtain a refund.

Here is an example
You file Form 1040-X during February 2025 and pay $150,000 in additional taxes because of the reduction in wages. On that same day, you place your protective claim in a different envelope, pay for separate certified mail, and file it.

- If during November 2025, you receive your $500,000 ERC, you celebrate. You don’t need to do anything extra.
- If during November 2025, you learn that the IRS rejected your ERC, you exercise your protective claim and obtain a $150,000 refund of the taxes you paid on February 12, 2025.

Failing to Amend on Purpose

If your failure to reduce the wages after the credit was calculated was intentional-i.e. to evade or defeat the tax statute of limitations does not apply, and the IRS can create collection actions at any time.

BergerCPAFirst, with over 30+ years of experience, offers comprehensive tax preparation services for individuals and businesses nationwide. Our commitment is to provide personalized attention while ensuring compliance and maximizing tax benefits. If you have any questions or would like to schedule a consultation, please call (201) 587-9200 or send us an inquiry.