Does Colorado Tax ERC Federal Credit?

Key Takeaways

• Businesses that experienced significant revenue declines or operational suspensions due to COVID-19 are eligible to claim the ERC, with potential credits of up to $28,000 per employee for 2021.
• Businesses can retroactively claim the ERC by filing amended payroll tax returns, with deadlines of April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims.
• Colorado taxes the Employee Retention Credit (ERC) as income, meaning businesses must report the credit on their state tax returns and adjust their wage deductions accordingly.
• At ERTC Express, we help Colorado businesses maximize their ERC refunds, offering expert guidance, audit defense, and no upfront fees, ensuring a smooth and compliant filing process.

 

ERC Basics

The Employee Retention Credit (ERC) is a refundable payroll tax credit created to incentivize employers who retained employees during the economic downturn caused by the COVID-19 pandemic. 

 

Introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the ERC provided financial relief to businesses like nursing homes and bars that faced significant operating issues caused by government-mandated shutdowns and reduced revenues.

 

Eligibility to Claim ERC

Employers could qualify for the ERC if they experienced a full or partial suspension of operations due to government orders or if their gross receipts declined significantly—by at least 50% in 2020 and 20% in 2021 compared to the same quarter in 2019.

 

Credit Amount

The ERC initially allowed businesses to claim a credit of up to $5,000 per employee for wages paid in 2020. For 2021, this was expanded to $7,000 per employee per quarter, allowing a total potential credit of up to $28,000 per employee for that year.

 

Qualified Wages

The definition of qualified wages includes salaries and also health insurance costs. The specific rules regarding which wages count toward the credit differ based on the size of the employer:

• For small employers (100 or fewer full-time employees in 2020; 500 or fewer in 2021), all wages paid during eligible periods qualify.
• For larger employers, only wages paid during periods when employees were not working count.

 

Claiming the Credit

Although the ERC program officially ended on September 30, 2021, businesses can still retroactively claim the credit by amending their tax returns for eligible periods up until 2024. The deadlines for filing these claims are:

• For 2020: April 15, 2024
• For 2021: April 15, 2025

 

Here’s a summary about the differences between ERC claims for 2020 and 2021 (image courtesy of financestrategists.com).

 

Although the ERC is exempt from federal taxes, certain states like Mississippi may opt to tax the refunds. More on this below. 

 

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 Colorado Tax ERC Federal Credit?

Yes, Colorado does tax the Employee Retention Credit (ERC) as income – any amounts received from the credit must be reported as income on both federal and state tax returns.

 

The Colorado Department of Revenue stated that wages and salary deductions disallowed at the federal level under section 280C of the IRC for ERC purposes can be deducted from the federal taxable income reported to the state.

 

This aligns with the treatment of similar credits in other states, where such credits are often subject to state taxation rules. Employers should ensure they accurately report their ERC on their tax filings to comply with both federal and state regulations.

 

Choose ERTC Express for Your ERC Filing

At ERTC Express, we offer a specialized service that can help Colorado business owners file and claim their ERC. 

 

How ERTC Express Helps Colorado Business Owners

• Our team of U.S.-based CPAs brings expert guidance to ensure you fully understand your eligibility and get the maximum refund possible.
• We take care of all the documentation needed for the ERC application. By handling the paperwork, we make the process smooth and easy for business owners, saving you time and effort.
• To protect your claims, we use our “Power of 3” system, where three separate CPAs carefully review your credit amount before it’s submitted. This thorough check makes your claim more defensible in the event of an audit.
• We also don’t charge any upfront fees. You only pay after you receive your ERC funds, which aligns our success with yours.
• Our results speak for themselves – on average, our clients receive refunds 40-120% higher than those processed through larger payroll or software companies. 
• We offer personalized support – you get a dedicated account manager who will guide you through the entire process and wil be available to answer any questions along the way.
• Finally, we are committed to full compliance with IRS regulations.

 

You can get your ERC claim in just three easy steps through us. 

 

Contact ERTC Express

 

Frequently Asked Questions (FAQ)

 

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a refundable payroll tax credit designed to incentivize businesses to retain employees during the economic challenges posed by the COVID-19 pandemic. It allows eligible employers to claim a credit based on qualified wages paid to employees.

 

How can Colorado businesses claim the ERC?

Businesses can claim the ERC by filing Form 941-X to amend their payroll tax returns for eligible periods. They can retroactively apply for credits up until April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims. Colorado business owners can reach out to us at ERTC Express to get started on their ERC claiming process. 

 

What documentation is needed to claim the ERC?

To claim the ERC, businesses need to provide documentation showing eligibility, including payroll records, financial statements demonstrating revenue decline, and evidence of operational suspension due to government orders.

 

Can businesses still claim the ERC if they received a Paycheck Protection Program (PPP) loan?

Yes, businesses that received a PPP loan may still qualify for the ERC, provided that the wages used for the ERC calculation do not include any amounts forgiven under the PPP.

 

Does Colorado tax the ERC federal credit?

Yes, Colorado taxes the Employee Retention Credit as income. While the credit itself is not taxable, businesses must reduce their wage deductions by the amount of the ERC claimed, which affects their overall taxable income in the state.