Does Arizona Tax ERC Federal Credit?

Key Takeaways

• Arizona does not tax the federal Employee Retention Credit (ERC), so businesses won’t need to pay additional state taxes on wages paid with the credit.
• While the ERC isn’t taxed, it can influence other areas like taxable profits and the Transaction Privilege Tax (TPT).
• Businesses have until April 15, 2025, for 2021 claims.
• At ERTC Express, we specialize in helping Arizona businesses maximize their ERC claims by providing expert guidance and audit defense with no upfront fees.

 

ERC Basics

The ERC or Employee Retention Credit is a refundable payroll tax credit that incentivizes employers who retained employees during the economic challenges brought on by the COVID-19 pandemic. 

 

It was introduced in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and has undergone several amendments through subsequent legislation, including the Consolidated Appropriations Act, the American Rescue Plan Act, and the Infrastructure Investment and Jobs Act.

 

Key Features of the ERC

 

• Financial Support: The ERC provides financial relief to businesses like hotels and restaurants that retained employees despite facing significant revenue losses due to pandemic-related disruptions. The credit may cover up to 70% of qualified wages paid to employees, with a maximum of $10,000 per employee per quarter in 2021, allowing for a total credit of up to $28,000 per employee for that year.
  
  
• Eligibility Criteria: To qualify for the ERC, employers must have experienced a full or partial suspension of operations due to government mandates or a significant decline in gross receipts. For 2020, a decline in gross receipts of at least 50% against the same quarter in 2019 is a requirement, while for 2021, the threshold was lowered to a 20% decline.

 

The differences between Employee Retention Tax Credit (ERTC) in 2020 and 2021 (image courtesy of financestrategists.com).

 

• Filing and Retroactivity: Although the ERC program officially ended for most businesses on September 30, 2021, eligible employers can still claim the credit retroactively by amending their payroll tax returns. The deadline for claiming the credit for 2021 is April 15, 2025.
  
  
• Impact on Payroll Taxes: The ERC is reported on Form 941 and can be claimed against the employer’s payroll tax liability. If the credit exceeds the payroll tax owed, the employer receives the difference as a refund.
  
  
• Interaction with Other Programs: Businesses that received Paycheck Protection Program (PPP) loans can still qualify for the ERC, provided they do not claim the credit on wages covered by the PPP.

 

Although the ERC is exempt from federal taxes, some states may tax the refunds. Let’s learn whether Arizona taxes the ERC credit.

 

ERTC Express: Maximize Your Employee Retention Credit (ERC)   Secure the maximum ERC refund effortlessly with ERTC Express. Our US-based CPAs specialize in ERTC claims, using a “Power of 3” system to ensure each submission is audit-ready. Typically outperforming standard claims by 40-120%, our client-centric service charges only after you receive your funds, ensuring our goals align with your success. Enjoy dedicated support and significant financial benefits with ERTC Express. Get expert help today!

 

Does Arizona Tax ERC Federal Credit?

Arizona does not tax the federal Employee Retention Credit (ERC). 

 

The ERC is a federal payroll tax credit not included in Arizona state income tax calculations. As an Arizona business owner, you don’t need to worry about additional taxes on wages paid using this credit. 

 

However, the ERC can impact other tax areas, such as taxable profits and payroll deductions. For instance, Arizona requires businesses to pay the Transaction Privilege Tax (TPT), similar to a sales tax on goods and services sold within the state. Paying out ERC wages can affect the TPT rate because of changes in taxable profits.

 

Arizona offers various state tax credits like the Charitable Tax Credit, Public School Tax Credit, and credits for contributions to Qualifying Charitable Organizations. However, these state credits are separate from and do not affect the federal ERC.

 

Choose ERTC Express for Your ERC Filing

At ERTC Express, we specialize in helping Arizona business owners claim and maximize their ERC refund in compliance with IRS regulations.

 

How We Help Arizona Business Owners

 

• Expert Guidance: Our U.S.-based CPAs guide you through the entire process and ensure that all documentation is accurate and complete.
  
  
• Maximizing Refunds: We secure the maximum possible credit for your business. Our approach often results in refunds 40-120% higher than those obtained through traditional payroll services.
  
  
• Audit Defense: With our “Power of 3” system, three CPA teams verify your credit before submission.
  
  
• No Upfront Fees: You pay only when you receive your funds. Our success is aligned with yours.

 

Our three-stage process to maximize your ERC claim.

 

Why Choose Us

 

• Specialized Focus: Unlike general tax services, we focus solely on ERC.
  
  
• Client-Centric Approach: Our dedicated account managers guide you at every step.
  
  
• Proven Results: Our clients consistently receive large refunds.

 

Contact ERTC Express

 

Frequently Asked Questions (FAQ)

 

Does Arizona tax the federal Employee Retention Credit (ERC)?

No, Arizona does not tax the federal Employee Retention Credit (ERC). The ERC is a federal payroll tax credit that is not included in Arizona’s state income tax calculations.

 

What is the Deadline for Claiming the ERC?

The deadline for claiming the ERC for 2021 is April 15, 2025.

 

What Documentation Will I Need for the ERC Claim?

To claim the Employee Retention Credit (ERC), you’ll need Form 941, 941-X, and 7200, along with payroll records, profit/loss statements, PPP loan documents, and evidence of operational suspension or significant business decline. Thorough and accurate documentation and consulting an experienced tax professional can maximize the chances of a successful claim.

 

How Long Does It Take To Process an ERC Claim?

After you file Form 941-X to claim the ERC, it could take the IRS several weeks or even months to process your claim, especially with the backlog from the pandemic.