Does Arkansas Tax ERC Federal Credit?

Key Takeaways

• Arkansas follows federal guidelines, so the Employee Retention Credit (ERC) is not considered taxable income at the state level.
• You still get the normal tax deduction for employee wages, even if those wages qualify you for the ERC (for both Arkansas and federal taxes).
• Employers in Arkansas can fully benefit from the ERC without any additional state tax consequences.
• At ERTC Express, we help Arkansas business owners handle the ERC filing process by providing expert guidance, audit defense, and contingency billing to maximize refund success.

 

ERC Basics

The Employee Retention Credit (ERC) is a refundable payroll tax credit established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. Its primary purpose is to provide financial relief to eligible employers like restaurants and hair salons who retained employees despite the economic disruptions caused by the COVID-19 pandemic.

 

The ERC allows eligible employers to claim a credit against their payroll taxes for wages paid to employees retained during the pandemic. The credit incentivized businesses to keep employees on their payrolls, even when their operations were partially or fully suspended due to government mandates or significant revenue declines.

 

Key Features of the ERC

 

• Credit Amount: For 2020, the ERC provided a credit of 50% of qualified wages paid, capped at $10,000 per employee for the year, resulting in a maximum credit of $5,000 per employee. In 2021, the percentage increased to 70% of qualified wages, with a similar cap of $10,000 per employee per quarter, allowing for a maximum credit of $7,000 per quarter, or $28,000 per employee for the year.
  
  
• Eligibility: To qualify for the ERC, employers must have experienced a full or partial suspension of operations due to government orders or a significant decline in gross receipts. Specifically, for 2020, businesses needed to show a decline of at least 50% compared to the same quarter in 2019, while for 2021, the decline threshold was reduced to 20%.
  
• Claiming the Credit: Although the ERC officially ended for most businesses on September 30, 2021, employers can still retroactively claim the credit for eligible wages paid during the credit-generating periods. The deadlines to file for the ERC are April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims.

 

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

 

Important Considerations

 

• Interaction with Other Programs: Initially, businesses that received Paycheck Protection Program (PPP) loans were ineligible for the ERC. However, this restriction was later lifted, allowing those businesses to claim the ERC as long as they do not claim it for wages covered by the PPP.
  
  
• Complexity and Compliance: The ERC process can be complex, and businesses are advised to work with knowledgeable tax professionals like ERTC Express to ensure compliance and accurate claims. There have been reports of scams targeting employers seeking to claim the ERC, so due diligence is essential.

 

The ERC is a crucial financial support mechanism for employers who retained employees during the pandemic. It aimed to preserve jobs and stabilize the economy. Although the ERC is exempt from federal taxes, some states may tax the refunds. 

 

Let’s learn whether Arkansas taxes the ERC credit and how we can help you maximize your refund while complying with IRS regulations.

 

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 Arkansas Tax ERC Federal Credit?

Arkansas follows the federal treatment of the ERC — the credit is not considered taxable income under state income tax regulations.

 

Wages used to calculate the ERC are still deductible as a business expense for Arkansas income tax purposes, just as they are for federal income taxes.

 

Employers can claim the ERC on their federal payroll tax returns (Form 941) and reduce their federal payroll tax deposits accordingly. Employers can fully benefit from the ERC without any state tax consequences in Arkansas.

 

Choose ERTC Express for Your ERC Filing

At ERTC Express, we help Arkansas business owners manage the process of claiming the ERC.

 

How We Help Arkansas Business Owners

• Expert Guidance: Our U.S.-based CPAs are experts in ERC filings and will help you understand your eligibility and maximize your refund.
  
  
• Comprehensive Support: Our dedicated Account Executives guide you through every step of the ERC process from gathering documentation to submitting your application.
  
  
• Audit Defense: Using our “Power of 3” system, three CPA teams verify your credit amount to minimize audit risks.
  
  
• Contingency Billing: You only pay when you receive your funds, so our success is aligned with yours. We’re fully committed to securing the highest possible refund for you.

 

Overview of our three-stage process to maximize your ERC refund in Arkansas.

 

What Makes Us Unique

• Higher Refunds: Our clients typically receive 40-120% higher refunds than those obtained through payroll and software companies.
• Client-Centric Service: We provide personalized support with dedicated account managers, offering ongoing guidance and addressing any questions you have throughout the process.
• Proven Results: Our track record speaks for itself—many of our clients have received significant tax credits they didn’t know they were eligible for.

 

Contact ERTC Express

 

Frequently Asked Questions (FAQ)

 

Is the ERC taxable in Arkansas?

No, the Employee Retention Credit is not taxed as income in Arkansas. While it gives a federal payroll tax credit, it does not affect state income tax calculations, allowing businesses to benefit fully without state tax implications.

 

What Documentation Do I Need to Provide for an ERC Claim?

Be prepared to provide:

• Detailed payroll reports for the claim period.
• Proof of any government mandates that affected your business operations.
• Financial statements showing your gross receipts for the relevant quarters.
• Records of health insurance premiums paid, if they’re included in your claim.

 

Having this information ready will make the claim process easier.

 

What Should I Do If My ERC Claim Is Denied?

Don’t panic. Carefully review the reasons for the denial. You may need to provide additional information or correct any errors in your claim. If necessary, you can also appeal the decision. Remember, denial isn’t the end of the road—it’s just a bump along the way.

 

How can ERTC Express Assist Arkansas Business Owners in Claiming the ERC?

At ERTC, we evaluate eligibility, calculate potential credits, and guide Arkansas business owners through the complex filing process. We also offer audit defense services.