On February 24, 2023, the FTB has reconsidered its position regarding California’s tax treatment of the Employee Retention Credit (ERC) FTB will not require taxpayers to include any portion of the ERC on their California tax return.
FTB stated:
“Recently, the Franchise Tax Board provided a response to a question regarding the taxability of the refundable portion of the federal Employee Retention Credit (ERC). The previous response indicated that the portion of the refundable ERC that is refunded to the taxpayer would be income for California income tax purposes. However, upon further review of the applicable federal rules and guidance related to the ERC, the Franchise Board has modified its previous response. An employer receiving the ERC is not required to include the portion of the credit that reduces the employer’s applicable employment taxes, nor the refundable portion of the credit, in its gross income for California income tax purposes.”
This means California taxpayers won’t have to report any ERC refunds as taxable income on the California return or will they have to reduce any wage expenses for which the ERC was claimed.
Should you have questions, please contact our office at 310.666.0244
Reference Entry Pages:
https://www.irs.gov/coronavirus/employee-retention-credit
https://www.ftb.ca.gov/about-ftb/newsroom/tax-news/march-2023/index.html#article2
https://www.caltax.com/news/hot-news-and-notes/erc-refunds-are-not-taxable-income-for-california/
Spidell, Flash E-mail, (2023, Feb. 24), “ERC refunds are not taxable income for California.” URL: https://www.caltax.com/search-results/?search=erc