Interaction with the PPP loans, wages covered by PPP loans are not eligible for ERTC credits.
Interaction of the ERTC and other payroll-related credits. Wages used for the following credits generally can’t also be used for purposes of claiming the ERTC: The tax credit for sick leave and family leave wages. The work opportunity tax credit. The payroll tax credit for R&D costs taken by eligible start-up companies. The Indian employment credit. Plus, the credit for active-duty military employees.
Deduction for wages on the employer’s income tax return. The ERTC reduces the wages-paid deduction on the employer’s income tax return. If the ERTC is claimed on Form 941-X after the employer filed its 2020 or 2021 income tax return, the employer must then amend that year’s income tax return to reduce its deduction for wages paid by the ERTC funds received. IRS is looking at this issue closely.
Supply chain disruptions. Some businesses have claimed they are entitled to the ERTC solely because of supply chain snags. Not so, says IRS in a legal memo that addresses some common taxpayer scenarios involving supply chain disruptions. There’s a narrow exception if a supplier couldn’t deliver critical goods or materials because of a COVID-19-related governmental order that caused the supplier to suspend operations, which in turn led to a cessation of the employer’s business. In this case, the employer must show it couldn’t get the items from another supplier.