Does Illinois Tax ERC Federal Credit?

Key Takeaways

• The Employee Retention Credit (ERC) is a refundable tax credit for businesses affected by COVID-19.
• Illinois does not tax the ERC at the state level, aligning with federal guidelines.
• Corporate taxpayers in Illinois must reduce wage deductions by the amount of the ERC.
• At ERTC Express, we focus on maximizing ERC refunds for Illinois businesses, providing expert guidance and audit-ready documentation, all with no upfront fees.

 

ERC Basics

 

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a refundable tax credit designed to help businesses keep employees on their payroll during the COVID-19 pandemic. It was introduced under the CARES Act and has been extended and expanded by subsequent legislation. The ERC provides significant financial relief to eligible businesses like restaurants and bars by offering a credit against employment taxes.

 

Eligibility Criteria

Businesses could qualify if they experienced a full or partial suspension of operations due to government mandates or if they suffered a significant decline in gross receipts—specifically, a decline of more than 50% in 2020 and 20% in 2021 compared to the same quarter in 2019.

 

How to Calculate the ERC

Calculating the ERC involves determining the qualified wages paid to employees during eligible periods. For 2020, the credit is 50% of qualified wages, up to $10,000 per employee annually. In 2021, the credit increases to 70% of qualified wages, up to $10,000 per employee per quarter. Therefore, businesses can receive a maximum credit of $7,000 per employee per quarter in 2021.

 

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

 

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Claiming the ERC

Although the ERC program officially ended on November 30, 2021, businesses can still retroactively claim the credit by amending their tax returns for 2020 and 2021. The deadline for claiming these credits is April 15, 2024, for 2020 and April 15, 2025, for 2021.

 

Businesses claim the ERC on their federal employment tax returns, typically using Form 941. The credit directly reduces the employer’s share of Social Security tax. If the credit exceeds the amount of taxes due, the excess is refunded. 

 

While the ERC itself is not taxable, employers must reduce their payroll tax deductions by the amount of the credit claimed.

 

Does Illinois Tax ERC Federal Credit?

Illinois generally aligns its tax laws with federal guidelines. Therefore, like the federal government, Illinois does not consider the ERC as taxable income. This alignment simplifies the process for businesses, ensuring they don’t face additional state tax burdens for claiming the ERC.

 

Impact on Illinois Corporate Taxpayers

Corporate taxpayers in Illinois need to be particularly mindful of how the ERC affects their state tax filings. While the credit itself is not taxable, it does require an adjustment to payroll deductions. This means businesses must reduce their wage expense deductions by the amount of the ERC they receive.

 

So, if you claimed $50,000 in ERC, you need to reduce your wage deductions by $50,000. This prevents a scenario where businesses could both deduct the same wages as an expense and receive a credit for them.

 

• Ensure you have accurate records of all wages paid and the ERC claimed.
• Adjust your wage deductions on your state tax return to reflect the ERC.
• Consult with a tax professional to ensure compliance and avoid penalties.

 

Individual Tax Considerations

For individual taxpayers in Illinois, the ERC does not have a direct impact. Since the ERC is a credit for businesses, individuals do not need to adjust their personal income tax returns. 

 

It’s also worth noting that if you receive dividends or distributions from a business that claimed the ERC, those amounts may be affected by the reduced wage deductions. Therefore, while the impact is indirect, it can still influence your personal finances.

 

Choose ERTC Express for Your ERC Filing

At ERTC Express, we specialize in helping businesses maximize their ERC while ensuring full compliance with federal and state tax laws. We offer a comprehensive service that covers every aspect of the ERC process – from initial eligibility assessments to final filing and adjustments.

 

Our team includes U.S.-based CPAs with specialized expertise in ERC filings. This ensures that your claims are accurate and compliant with all relevant laws.

 

Our “Power of 3” approach has three CPAs thoroughly reviewing each claim to ensure accuracy, helping businesses secure refunds that are frequently 40-120% higher than those handled by larger payroll or software companies.

 

How to Get Started

Getting started with ERTC Express is simple. Follow these steps to begin your ERC claim process:

 

• Step 1: Visit our ERTC Express website and fill out the initial consultation form.
• Step 2: Schedule a consultation with one of our ERC experts to discuss your eligibility and gather necessary documentation.
• Step 3: We will handle the entire filing process, ensuring all forms are completed accurately and submitted on time.
• Step 4: Receive your ERC refund and enjoy the financial relief it provides to your business.

 

Contact ERTC Express

 

Frequently Asked Questions (FAQ)

 

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a federal refundable payroll tax credit established under the CARES Act to support businesses that retained employees during the COVID-19 pandemic. Eligible businesses can receive credits ranging from $5,000 to $28,000 per employee, depending on the year and wages paid.

 

Does Illinois tax the ERC federal credit?

No, Illinois does not tax the ERC as taxable income. 

 

Is the ERC credit refundable?

Yes, the ERC is a refundable tax credit. This means that if the amount of the credit exceeds the employer’s share of Social Security tax, the excess is refunded to the employer. This can provide significant financial relief to businesses that qualify for the credit.

 

Can employers claim both ERC and PPP?

Employers can claim both the ERC and the Paycheck Protection Program (PPP) loans, but there are specific rules to follow. You cannot use the same wages for both programs. So, careful planning and documentation are essential to ensure compliance and maximize benefits.

 

How do I claim the ERC if I’m an Illinois business owner?

Eligible businesses can claim the ERC by filing IRS Form 941-X to amend their original payroll tax returns for the applicable quarters. Gather necessary documentation such as payroll records and financial statements to support your claim.