Understanding Senate Bill 410

The Employee Retention Tax Credit (ERTC) was designed to refund businesses that retained their employees during the COVID-19 pandemic. Businesses would file an ERTC claim to receive funds, which were later reflected as taxable income by amending their tax returns. This was achieved by reducing deductible wages. However, amending federal returns also required amending Kansas returns, resulting in Kansas taxing the ERTC without offering any corresponding benefit, effectively penalizing businesses for claiming the credit.

Thankfully, the recently enacted Senate Bill 410 offers a partial remedy for this issue. If your business received ERTC, you now have the opportunity to amend your 2020 and/or 2021 returns. For instance, consider XYZ Company, which claimed $600,000 in Federal ERTC and adjusted their 2021 return for taxes in 2022. They can now amend their 2021 Kansas return to deduct 50% of this amount, or $300,000, reducing their Kansas taxable income by $300,000 and saving $17k in Kansas taxes.

Taxpayers have until April 15, 2025, to make these amendments before the statute of limitations closes for these years. However, not all ERTC recipients may find it financially beneficial to pursue this opportunity, considering the costs associated with amending and filing the necessary paperwork with the state. For example, if potential tax savings amount to $500 but the cost of amending returns is $800, it may not be advantageous to proceed.

Next Steps

If your business received ERTC assistance from a provider other than us, please contact a Adams Brown advisor to explore this opportunity. If Adams Brown assisted you with your ERTC, rest assured that we are proactively reviewing this matter on your behalf.