Lacerte

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Employee retention credit:

Do you have to reduce expense by the credit?

The credit is not taxable?

New rules regarding PPP now show expenses are deductible and loan forgiveness is not taxable?  Does the same apply to Retention Credit of up to $5k per employee retained?

Also, did CA finally comply with Feds?

Thanks.

[Just-Lisa-Now-]

CA does not conform. Expenses are not deductible on the CA return.

[abctax55]

@Just-Lisa-Now- 

ERC is a Federal only concept; it's not the same as the PPP loans.

edit... oops.... I see you were answering the second part of the OP & I hadn't gotten that far.

[abctax55]

ERC:

Yes, the payroll expense is reduced by the ERC - same protocol as the W.O.C.  (I'm 99.9% sure, that's tonight's homework).

The credit is taken on the F.941.  It isn't taken into income, other than by reducing the deduction.  But credits are dollar for dollar against tax.  Taking ERC on the F.941 can generate LARGE refunds; more than enough to offset any additional tax generated by losing part of the deduction.

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PPP:

The loan has never been considered income; and Congress passed the law on 12.21/Trump signed it 12.27/ IRS conceded that the expenses paid with PPP funds ARE deductible.  Some states agree, some states don't.  CA disallows the deduction paid with PPP funds.