A Comprehensive Guide: Reporting Employee Retention Credit on Form 1065 for Business Owners

Jun 12, 2023 | Affiliates


If you have claimed the Employee Retention Credit (ERC), it is essential to report it on your tax return accurately. For partnerships and multiple-member LLCs, Form 1065 is used to report income, deductions, and credits. This informative blog post will guide you through reporting the Employee Retention Credit on Form 1065. This ensures compliance and maximizes your benefits.

Understanding the Employee Retention Credit

The Employee Retention Credit is part of the CARES Act to support businesses during the COVID-19 pandemic. It provides eligible employers with a refundable tax credit for retaining employees during specific periods during the pandemic.

Reporting the Employee Retention Credit on Form 1065:

Step 1: Gather Necessary Documentation. Collect all relevant documentation related to the ERC. This includes records of eligible wages, the number of full-time employees, and any other supporting documentation required for the credit.

Step 2: Determine Eligible Quarters: Identify the eligible quarters during which you claimed the Employee Retention Credit. For the ERC, you can claim the credit for wages paid between March 13, 2020, and December 31, 2020.

Step 3: Complete Schedule K. On Schedule K of Form 1065, Partners’ Distributive Share Items, report the total amount of the Employee Retention Credit for each eligible quarter. Allocate the credit among the partners based on their ownership percentage or as specified in your partnership agreement.

Step 4: Attach Schedule K-1. For each partner, prepare and attach a Schedule K-1 (Form 1065), the Partner’s Share of Income, Deductions, Credits, etc. Provide each partner with a copy of their Schedule K-1 for their individual tax reporting.

Other steps to follow

Step 5: Complete Form 5884-B. Complete Form 5884-B, Employer’s Credit for Employee Retention Credit, to calculate the total amount of the Employee Retention Credit. Use the information from Schedule K to accurately determine the credit amount.

Step 6: Report the Credit on Form 1065. On Form 1065, page 4, Part III, report the total Employee Retention Credit calculated on Form 5884-B. Enter the credit amount on line 13, “Other Current Year Credits.” Provide the necessary details and complete any additional sections related to the credit, as instructed by the IRS.

Step 7: Review and Double-Check. Thoroughly review Form 1065, Schedule K, and supporting schedules to ensure accurate reporting of the Employee Retention Credit. Double-check all calculations and cross-reference with the instructions provided by the IRS.

Step 8: Consult with Tax Professionals. Given the complexity of reporting the Employee Retention Credit on Form 1065, consulting with tax professionals specializing in partnership tax filings is advisable. They can provide expert guidance tailored to your situation, ensure compliance with IRS regulations, and address any questions or concerns.

Conclusion on Reporting Employee Retention Credit on Form 1065 for Business Owners

Accurately reporting the Employee Retention Credit on Form 1065 is crucial for business owners. By following the step-by-step guide provided in this blog post, you can ensure compliance with IRS requirements and maximize the benefits of this valuable credit. Remember to gather all necessary documentation, complete the required schedules and forms, and consult with tax professionals for additional support. Reporting the Employee Retention Credit correctly will help you navigate tax season successfully and maximize the available relief for your business.

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