The ERC (Employee Retention Credit): Key Updates.

In this episode of The Dental Boardroom Podcast, Wes Read CPA, CFP, founder of a dental CPA and financial planning firm, dives deep into the Employee Retention Credit (ERC)—what it was, how it worked, and the lingering tax implications that dentists still need to address in 2025. From qualification rules and tax amendments to why the IRS is still behind on guidance, Wes breaks it all down with clarity and real-world insight. If you're a dentist who claimed the ERC or are still navigating its aftermath, this is a must-listen.

Key Points Covered:
What the ERC is: A government stimulus program that provided financial relief to businesses during COVID closures, especially valuable to dental practices.
How eligibility was determined: Based on revenue drops and specific calendar quarters in 2020–2021.
Claiming the ERC: Typically filed retroactively through amended 941 payroll tax returns.
Why ERC resurfaced in 2025: The amendment window has closed, and many dentists are left wondering how to finalize tax treatment of ERC funds.
Tax implications explained: Receiving ERC impacts labor expenses, corporate profits, and personal tax returns—requiring multiple amendments.
When to file amendments vs. report ERC on current returns: Wes explains how to navigate reporting ERC on 2024 or 2025 returns if amendments weren’t done in time.
IRS delays and confusion: Lack of consistent IRS guidance caused delays and headaches for dental CPAs and clients.
Important advice: Include the ERC in your current or next year’s tax return if you're too late to amend previous years.

DentalBoardroomPodcast #DentalCPA #EmployeeRetentionCredit #ERCTax #DentalPracticeFinance #COVIDRelief #IRSUpdates #DentalTaxPlanning #PracticeOrbit #DentalBusinessTips #TaxAmendments

Transcript:

Wes Read: [00:00:00] Welcome everybody to another episode of the Dental Boardroom podcast. It's Wes Reed. Subject of the day is the ERC, the employee retention credit. As you know, I run a dental CPA and financial planning firm and as the dental CPA on the dental CPA side. We do a lot of tax returns. And, uh, we do about 800 tax returns a year.

So we sort of know the drill pretty well. We got a very solid tax team here who, uh, knows dental tax since we work exclusively in dental. Well, one of the subjects that is on the minds of a lot of, uh, dentists right now is this thing going way back to the COVID closure era in 2020, and that is this credit called the ERC, the employee retention Credit.

And it put a lot of money in a lot of dental bank accounts, really [00:01:00] in a lot of bank accounts and businesses throughout the country, and it really did help a lot of dentists get through that period of time when for many of you, you had to literally close your office. And since a lot of your costs are fixed, like your rent, for example, or loan payments, even though you may have had a temporary abatement on some of those, for a lot of you, you didn't.

You needed some extra cash to to get by. And so the ERC was a lifesaver for a lot of people. And so I would say virtually, I can't think of a single client that didn't apply for the ERC. I think everyone applied for it. I think a lot of people who needed it. Got it. And I think a lot of people who didn't necessarily need it still got it.

It was generally, granted, we will just put it that way, by the government. In some ways it was like the government drop in money from a helicopter. That's the analogy that economists use sometimes when they talk about stimulus, government stimulus in order to help the economy get through or weather a storm, um, or [00:02:00] to simply sort of kickstart consumer spending.

Et cetera. It's one of the strategies, basically just drop money, make it very accessible, and in many ways that's what the ERC was. Now, there was a process to apply for it. Um, and what I wanna address in the next roughly 15 to 20 minutes is just a reiteration of what it was, how it was claimed. Is it taxable?

How are the taxes calculated and the payments made, and how is, is there an amendment needed, a tax amendment? And what do you do if the amendment window is closed? Well, that right there, that last. Point is the reason why the ERC is resurfacing as a point of conversation with a lot of our clients is because the amendment window has closed, and a lot of our clients are asking, well, what do we do then to sort of close out the ERC from an accounting and tax standpoint and call that done and buried?

I feel like the ERC is never [00:03:00] gonna go away. It is just one of those sticky things from the government that has been extremely mishandled. Guidance has been late chronically late, and US CPA firms out here are oftentimes trying to guess in the dark a bit what we should do about this ERC money. 'cause it was a lot of money for a lot of people, depending on how many quarters you claimed it for.

So let me jump in. What was the ERC? Just a quick reminder of what the ERC was, uh, the employee retention credit was if you had reduction in your, uh, income to a certain level, then you could qualify back in. It was starting in Q2, might have been Q3, I think it was Q2 2020, and it continued through Q4.

Calendar Q4, 2021. And so you had roughly six or seven quarters there where depending on the [00:04:00] financial need, and by that meaning that if your, your revenue dropped enough, then you were able to essentially have the government kick in and pay for 50% of your labor costs up to a cap per employee, which I believe was 10,000 per quarter.

It's been a few years since I ran through all these numbers, to be honest, but pretty sure that's, that's how it was calculated. And so we, at that time, at practice CFO, we sort of really. Very quickly overnight created an assembly line, so to speak, to help our clients who requested this to file for the ERC for those quarters.

And then it really was later, I think in late 2021 or so that they extended it into 2021 and it was open for a couple years to be able to claim that credit for 2020 and 2021. And so. A lot of clients acclaimed [00:05:00] 2020 right away, right in the the heat of the COVID moment. And then a lot of dentists claimed later quarters, well after the fact, and in many cases, well after they were back on their feet.

But hey, if the government's handing out money, admittedly it can be hard to turn that down. And if you truly did suffer an economic loss for those quarters, it is a way for. The government to step in and say, here's some subsidies to, uh, make you whole for some of the economic effect of COVID, which much of that was imposed by state and federal governments on how long certain, uh, industries were closed down and whatnot.

So that's what it, that's what it was, and that was how it was calculated. And the way that it was claimed is your payroll provider who files quarterly. Payroll tax returns, they're called the nine 40 ones and then once a year, uh, they do the nine forties. [00:06:00] But these payroll tax returns when you file that quarterly return.

Now, for most of you claimed that you, you filed to claim the ERC credit after the quarter was over, in which case the payroll provider had to go back and redo or AKA amend that quarters 9 41. Payroll tax return and when they would amend it, they would apply that credit. And when they applied that credit and they submitted that amended 9 41 tax return to the IRS some period later, in some cases it was, it felt like immediate.

And in some cases it took like two years for that claim of ERC money to finally come as a check to. The business owner to the dentist who would then deposit it in their corporate account and use that extra money for the various operating expenses that they have. But what was chaotic about it was the IRS sort of extending the [00:07:00] date at which one could file giving instructions on.

How to submit for the amendment. Payroll companies were all scrambling a little bit to get their technology in place to be able to file that amendment the right way and help you determine eligibility of your ERC, and then the checks would start coming in. And then the question is, now what do you do?

Because when that check comes in, what happens when you. Go back two years, three years, whatever, to your 2020 or 2021, that period and you amend the payroll tax return to show that you had less wages. 'cause what the government allowed you to do, going back to how it was calculated, is you could take what your, were your normal wages for that quarter, and let's say it was a hundred thousand, and let's say you've got a $40,000 credit for that quarter.

The wages essentially that you reported to the government, therefore were [00:08:00] 60,000, a hundred thousand were your actual wages, but you got a reduction of 40,000 for the credit. So your actual wages were $60,000. Well, it's most likely that your 2020 tax return was already filed by the time that you received that money, and there was guidance on how to handle this from the IRS, in which case.

Then not only was that payroll tax return, 9 41 I mentioned earlier, amended. Now you have to amend your business tax return, whether you're a sole prop, S corp partnership, C corp, doesn't matter. Most of you are scorpions if you're a single doctor owner or you're a what's called a 10 65 partnership. If you are more than one doctor.

When you reduce or when you change an item on your profit and loss statement, essentially your labor costs, which which are now lower by some amount, you [00:09:00] have to redo your business tax return for that for that year, which is different to clarify than your payroll tax return. Your payroll tax return is the 9 41.

If you're an S corporation, you're filing what's called the 1120 Yes. Tax return. That 1120 is tax return now has to be redone or amended in order to, uh, reflect lower wages. Well, what happens if your wages are lowered? What happens to your profit if you have a lower wage expense? Well, if your expenses are less, your profits are going up.

Less expense, higher profit. Very simple. If your profits go up, well, guess what? Do you pay more corporate taxes? Not really. Because S corporations are not subject to taxes. Some states like California, they charge a modest 1.5%, but in most states, your S corporation does not pay taxes. It's called a flow through entity, which means it takes the profits [00:10:00] from your corporation and it flows it out to the owner on this form called a K one, which if you're a business owner, a dental practice owner, and you're an S corp or partnership, you know exactly what a K one is 'cause you get it every year.

And that K one now is reflecting higher profits from your corporation because the corporate profits are higher because your labor expense is lower from the credit. So you have all these amendments going on because you amend the 9 41, which means now we have to amend the corporate return or the business return.

And if you amend the business return, a K one flows outta that to you personally on your, on your 10 40 personal tax return. Now that needs to be amended. So you have three amendments. You got the 9 41. You got the 1120. If your partnership, it's the 10 65. If you're a sole prop, then you don't have a business tax return.

It just goes straight on your sole proprietor schedule C on your, on your 10 40, but you got your 9 41, your 1120 s, and your 10 40. All those had to be amended. Well, what happened was. [00:11:00] A lot of people for a period of time, the IRS put a moratorium on this. They were just so backed up. They were so confused on how to roll this out, how to have the amounts reported, taxes collected, all that.

They were just so late on this stuff that a lot of doctors received the ERC and then filed these amendments years later, say 2023, 2000 or 2024. And so their CPA may have filed it. Now, a lot of you said, wait, I don't want to file an amended return, even though the 9 41 amendment was submitted by the payroll company, I don't wanna amend my corporate or personal return until I receive that ERC money because what happens if I go and do the amendment to my corporate and personal return and I pay the taxes?

Since now my income is higher, I pay the taxes. But then. I never get the ERC money. Well now I gotta go to try to hunt down that refund from the IRS by saying, Hey, IRS, you never paid me my ERC, even though we [00:12:00] did the 9 41 amendment and I want my money back that I paid for the amended return. So what we were generally advising clients, but leaving it up to them was, don't file the amendments until you actually get the ERC cash.

Now, here we are in April of 2025. Most of our clients have received the ERC. There's a few lingering out there, and we're reaching out to the IRS and trying to understand why. Honestly, there doesn't seem to be a rhyme or reason sometimes with the IRS, but most of you have received the ERC claims. By this point.

Are you looking to buy or sell a dental practice? If you're a seller, how do you find a strong list of potential buyers? There's no MLS or Zillow for dental practice sales in such a fragmented market with transaction costs so high, many dentists selling their practice feel discouraged. That's why I built practice orbit.com.

Practice orbit is modernizing how dental practices are sold. It's an online marketplace platform and it brings together buyers, sellers, and [00:13:00] their teams to smoothly navigate a transition. When you list your practice for sale on practice orbit, you'll present a detailed and polished profile of your practice.

You a large pool of potential buyers. Think of it like a Zillow home profile, but for your practice. And importantly, that profile will remain anonymous, which means you can showcase your practice without worrying about the public or team members. Finding out only after an interested buyer signs an NDA will that buyer see your name, address, and practice pictures.

And at Practice orbit, we have a team deeply experienced in dental practice sales. Our broker and support team will hold your hand each step of the way when you combine the power of Marketplace technology with the highly qualified team at Practice Orbit. The result is a maximized sale price and a smooth transition timeline.

And hey, buyers, you can search for practices. Submit NDAs and tender offer letters [00:14:00] directly within the platform. You can even create saved searches and be auto notified when a new practice comes for sale in your market. If you're thinking about buying or selling a dental practice, create your free account today@www.practiceorbit.com.

Now, one thing I wanna clarify is two things. Number one, if you have to pay taxes on the ERC money, which is effectively, effectively what you do, you're probably gonna ask why. Why should I even claim the ERC if I get the money and I have to pay taxes? Well, because you're, you're only paying your taxes.

Taxes on the ERC. So if you're federal, and this was only a federal deduction, so if you're federal. Or is the federal credit. So if your federal tax rate is, let's say 35%, yeah, you're gonna pay 35% on the ERC you got. So if you got a hundred thousand dollars in that scenario, you're gonna pay $35,000 to the IRS for recognizing that a hundred thousand dollars as [00:15:00] income and you're keeping 65,000.

So to, to address this first point, it still made a lot of sense because you kept somewhere probably around 60 to 70%, maybe more depending on your tax bracket, your marginal tax bracket at the time of recognizing that ERC money. But you're, you're keeping most of it, in other words. So that's why even if it was taxable, it still made sense.

Now, another point on this is that a 9 41 payroll tax amendment. 9 41 payroll tax amendment had to be made for every quarter that you are claiming the ERC. So theoretically, let's say you claimed 2020 Q3 and Q4, and then all four quarters of 2021. That's six quarters, which requires 6 9 41 amendments. 6 9 41 amendments by your [00:16:00] payroll provider.

Does that mean you have to do six business and personal tax return amendments? No, because 2020 has one business and personal return, and 2021 has one business and personal return. So if you filed in, in that case, you're gonna do one amendment for the two quarters of 2020 to your business and personal tax return, and one amendment for all four quarters for 2021 ERC.

So in that case, you would've got six deposits, six different ERC deposits, assuming you were eligible for all six quarters. But you would've only, and you would've filed 6, 9 41 amendments, but you would've only filed. Two business amendments, one for each year and two personal 10 40 tax return amendments.

One for each year. Okay, so we've covered what is the ERC? How is it claimed? Is it taxable? And how these, how these amendments [00:17:00] are, are working now what do you do with where we are today? The amendment window for 2020 2021. This is closed. 'cause usually I have. Three years from the time of filing the return, so the amendment window is closed and you can no longer file that amendment.

Let's say you received ERC money, but you never filed the amendment. Or maybe the amendment was filed, but it was rejected for whatever reason, and the IRS has said it's too late to file amendments. Now you're thinking, okay, I don't know how to do the right thing here and go tell the IRS. I got the ERC money and that I want to pay the taxes on it.

So what the IS has said, since you can't go back and amend for those years, 2020 2021. Now and again, had you been able to or done it before the amendment window was closed, you would've amended those and your tax repair would've given you a voucher to pay the taxes on the ERC for those two years. But you can't [00:18:00] do that now.

So what the Iris has said is to simply include. The ERC money that you received, but never filed a business and personal tax return amendment for to include that money in your 2024 tax return if you have not already filed it, if you've extended. Right now we're April 10th, so the corporate due date was March 15th.

That's already passed. If you already filed it. Then too late, you would have to include that ERC money in your 2025 corporate income, or you can go and amend your 2024, which kind of a pain in the butt to do that. So I would say just include it in 2024 if you haven't filed the return yet or include it in 2025.

Either way I think is good with the IRS now, a lot of people. [00:19:00] Don't wanna do that, and here's why. Do you ever feel lost in your practice Finances, and how about your personal finances? Ever wonder where your hard earned money goes and why you're not seeing the financial progress you've worked so hard for?

If so, listen up. As a dental CPA and financial planner, I've created our company practice, CFO, just. For you With almost two decades of experience practice CFO integrates great CPA services like accounting and tax with customized financial planning, both business and personal. Think of it this way, our dental focused CPA services give us the x-rays we need to clinically plan your global finances and be effective financial planners.

It's a highly customized approach we call the CFO model. Historically, having a CFO or Chief Financial Officer was an advantage of large corporations only, but today, practice CFO gives that same advantage to private dental practice owners. [00:20:00] As a client of practice CFO, you'll be assigned one of our dedicated CFO advisors.

You'll receive insightful financial reports each month. Have regular financial review meetings, reduce taxes, grow your wealth, and feel more in charge of your numbers. Because we believe that in the competitive landscape of dental practice ownership today, you have to be an effective business owner, not just a capable clinician.

Reach out to learn more@www.practicecfo.com.

If you had done an amendment in 2020, your tax return. Probably was a lot lower your income because your doors were shut for a few months. It was COVID. You may have gone from normally doing, let's say a million and a half a year, you may have dropped down to eight or 900,000. In other words, that was a very low tax year for you, and it's the lower tax year is the better year to have claimed that extra ERC income.

Because that extra [00:21:00] ERC income, therefore is layered on top of your income on your K one and W2, it's layered on top of that, and it's taxed at your marginal tax rate. That would've been lower, most likely in most cases. If you include that money in 2024, which was probably a better year for you than 2020, in which case that ERC money is taxed at your higher rate 'cause there's no separate tax rate for the ERC money.

All that's happening is the ERC money is added to your W2 and your K one. It's simply added to all of your other income that eventually lands on your 10 40 tax return. The ERC is added to that, and so whatever tax bracket you've sort of made your way into, 'cause the more income you have, you step like stairs, you step into higher tax brackets on that next level of income.

Well, if the ERC money is layered on at that highest step that you're on that highest bracket tier, then it's gonna be taxed at that tier. So I had a client recently where this was the case and it was gonna add about $12,000. To $15,000 [00:22:00] by adding it to 2024 instead of having done it through the amended route for 2020 and 2021.

So here's what I am, uh, informing clients and letting them make the decision. If you missed the amendment window for whatever reason, on whether it's your fault, whether the CPA firm was just too dang busy to get the amendment in on time, whatever the reason is to not. I said, you have two options. You can include it in your 2024 or your 2025 income and pay taxes on it, or, and that's what the IRS guidance is right now.

Or what some people are wanting to do is just wait and see. Hey, Wes, you know what, this has been such a, this has been such a confusing thing, and the IRS has been really messy around this. I'm gonna let the IRS come knock on my door if and when they want. Taxes on that. Now, as a CPA firm and as a CPA, I have to tell you what the IRS says.[00:23:00]

You make the decision. I don't know what the risks are of not making the payment and saying, okay, I owe the IRS $70,000 for all the ERC money or estimated 70,000. If I included my 200,000, my 100,000, my 400,000, whatever the sum of your ERC deposits were. If you included that in your tax return, let's say that's gonna end up, I'm just gonna use a rounded number and say that's 50,000.

You can write it, you, you can add that to your income right now. You're gonna make your check to the IRS or you're gonna see a reduction in your refund depending where you are with all of your other taxable situation. If you wanna wait, I. Don't know is the IRS gonna send you a letter at some point and say, you never paid this.

Are they gonna say, Hey, this is, this is at the level of being fraudulent. You knew this was taxable, and so they're gonna slap some really big penalty on it. Uh, or just some modest late penalty, which is what I suspect it would be. I think it would be some modest late [00:24:00] penalty for not having included that, or perhaps year by year is gonna go and.

The IRS is never gonna have the time or the manpower to follow up on this. And eventually some statute of limitations period is met and it's sort of it. It's in the wind at this point of water under the bridge. Nobody's gonna do anything about it. I don't know how that's gonna pan out at all. I know I should.

I know I should include it or I know I should. As a CPA give you that guidance, but I don't know ultimately how the IS is gonna work here. And we all know that. Most of us know, at least we CPAs do that. The Trump administration through Doge has fired, I believe about 5,000 IRS employees. I think there's around a hundred thousand.

There may be more cuts, and they were already backed up before that, so will they ever get around to this? I don't know. And I'm not telling you that you should not respond or not pay the taxes. That would be against my, you know, my license requirements as a licensed [00:25:00] certified public account. So I can't do that.

I. I'm just trying to, uh, sort of paint a picture for you, you on the history of these ERCs, where we're at now, and what are sort of the options for you in the future. Now, last, last point here. What can I do? Here's a question. What can I do if my ERC claim was disallowed and I already reduced my wage expense on my income tax return by the amount of the ERC?

So let's say you filed the ERC. Amendment on, on your 9 41, the payroll 9 41, let's say you did that for 2021 and um, and then a, a year or two go goes by, uh, your CPA has, you do the amendment for that year to your business and personal tax returns. You go ahead and pay the taxes on that thinking, okay, I'll pay the taxes ahead of time, so when I get it, I know I, it's done.

I don't have to pay taxes on it. But you never get it. And you get a letter that says you were disallowed from getting that credit. What do you do? You did the amendment business and personal, you paid the taxes and then after all that, you get a letter from the IRS [00:26:00] saying that you are disallowed from getting that ERC money.

Well, now you're sort of screwed. Alright, I'm gonna read something here. I wrote if your ERC was disallowed and you had reduced the wage expense on your income tax return for the year, the ERC was claimed. You may in the year, your claim disallowance is final. Meaning you are not contesting the disallowance, or you have exhausted your remedies to argue against the disallowance.

Increase your wage expense on your income tax return by the same amount that it was reduced when you made your claim. Alternatively, you made but are not required to file an amendment return. Okay? What, what this means is if you were disallowed, but you already amended and paid the taxes on it, then go ahead and take the amount that you of, of the wages that you, um.

That you paid taxes on and you can now add those wages to your 2024 or 2025 tax return. This is the opposite of the ERC calculation where you reduced your wages and got a refund. [00:27:00] Now you're gonna increase your wages on your tax return, which will reduce your profit today in your 2024 tax return.

That'll reduce your profit. And then by reducing your profit, it will reduce the the taxes that you have to pay. And ideally, you would collect at least as much. In refunds by doing that, that you already paid the IRS. Now, that last scenario is a little bit of an unusual scenario, but I wanted to go over that as I have seen it a couple times.

Alright, I hope that clarified a little bit on where we are with the landscape of the ERC. Tune in next time as we continue to cover the business topics of dental practice ownership.