Navigating the 2020 Employee Retention Credit (ERC) Adjustment: Compliance and Strategic Steps

Navigating the 2020 Employee Retention Credit (ERC) Adjustment: Compliance and Strategic Steps

The IRS mandates that anyone claiming the 2020 Employee Retention Credit (ERC) must adjust their 2020 wages on their tax returns accordingly. If you haven’t yet received your ERC funds and the IRS has not processed your claim, it’s essential to proceed with the necessary amendments to comply with tax laws and avoid potential penalties.

Importance of Timely Amendment

a. Compliance with Tax Laws

Despite the uncertainty surrounding the timing of the ERC’s approval, it is crucial to amend your 2020 tax return to reflect the ERC claim. This step ensures compliance with Section 2301(e) of the CARES Act and IRC Section 280C(a). By doing so, you align your tax records with federal requirements, thereby minimising the risk of facing penalties.

b. Statute of Limitations

Our records indicate that the statute of limitations for your 2020 individual federal tax return expires on May 17, 2024. This deadline is fast approaching, and timely action is necessary to amend your return. Waiting until after this date could result in the inability to make necessary adjustments, leading to complications with the IRS.

Recommended Actions

To ensure compliance and protect your financial interests, the following steps are recommended:

  1. Amend and file your 2020 tax return before the May 17, 2024, deadline.
  2. File a protective claim to safeguard against the possibility that the IRS might reject your ERC claim or approve a lesser amount.

a. Filing a Protective Claim

Filing a protective claim is a strategic move to ensure you can claim a tax refund after the statute of limitations expires if the IRS denies or reduces your ERC claim. This claim serves as a safety net, ensuring that you are not financially disadvantaged by the potential outcomes of the IRS’s decision on your ERC claim.

b. Detailed Steps for Amendment and Protective Claim

Step 1: Amending Your 2020 Tax Return

Amending your tax return involves revisiting your 2020 wages and adjusting them to account for the ERC. This process includes:

  • Reviewing your original 2020 tax return to identify the wages reported.
  • Calculating the ERC based on eligible wages and the credit percentage.
  • Adjusting the reported wages to reflect the ERC, which might reduce the total taxable income.
  • Submitting Form 1040-X (Amended U.S. Individual Income Tax Return) to the IRS with the updated information.

This amendment ensures your tax records are accurate and compliant with current tax laws.

Step 2: Filing a Protective Claim

A protective claim is a formal request to the IRS to keep your claim open beyond the statute of limitations. The steps include:

  • Preparing the protective claim with detailed information about the ERC claim.
  • Submitting the claim along with your amended tax return.
  • Keeping thorough documentation of all communications and submissions to the IRS.

The protective claim provides a fallback, ensuring that you can pursue a refund even if the IRS delays its decision on your ERC claim.

Addressing Concerns and Clarifications

a. Understanding the Burden

I understand these steps might seem burdensome, especially during uncertain times. However, they are crucial for ensuring compliance and minimizing potential financial impacts. By taking proactive measures, you can avoid future complications and secure your financial standing.

b. Potential Scenarios

There are several potential outcomes of the IRS processing your ERC claim:

  1. Full Approval of ERC: If the IRS approves the full amount of your ERC claim, the amended tax return will accurately reflect your wages and tax liability, ensuring compliance.
  2. Partial Approval or Denial of ERC: If the IRS approves a lesser amount or denies the claim, the protective claim will enable you to adjust your tax records accordingly and pursue any entitled refunds.


Given the approaching deadline and the importance of compliance, it is essential to proceed with amending your 2020 tax return and filing a protective claim. These actions safeguard your financial interests and ensure adherence to federal tax laws.

Next Steps

Please let me know at your earliest convenience if you want me to amend your 2020 individual tax return and file the protective claim. Taking prompt action will help ensure that you meet the necessary deadlines and remain compliant with IRS requirements.

Additional Resources and Support

If you have any questions or need further clarification on the process, please feel free to reach out. We are here to assist you through each step and ensure that your tax matters are handled efficiently and effectively.

Click the link below to book a free consultation call with our tax experts today. 

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