Employee Retention Credit (ERC)
COVID-19 relief credit for retaining employees—retroactive claims still possible
Trusted by high-growth startups
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) was a refundable payroll tax credit created by the CARES Act to encourage businesses to keep employees on payroll during COVID-19. While the program ended September 30, 2021, eligible businesses can still file retroactive claims.
Historical Relief Program
ERC provided credits for wages paid between March 13, 2020 and September 30, 2021 (December 31, 2021 for recovery startup businesses). The program has ended, but retroactive claims are still being processed.
Credit Amounts
2020: Up to $5,000 per employee ($10K wages × 50%). 2021 Q1-Q3: Up to $7,000 per employee per quarter ($10K wages × 70% = up to $21K total). Combined maximum: $26,000 per employee.
Qualification Tests
Businesses qualified by either experiencing a full or partial government shutdown OR significant revenue decline (50% in 2020, 20% in 2021 vs. comparable 2019 quarter).
How It Works
Eligibility Assessment
Determine if your business qualifies for ERC based on shutdown orders or revenue decline
- Review government shutdown orders affecting operations
- Calculate revenue decline percentages vs. 2019 comparable quarters
- Identify qualifying quarters (Q2-Q4 2020, Q1-Q3 2021)
- Verify no double-dipping with PPP loan forgiveness for same wages
Qualifying Wages Calculation
Calculate eligible wages for each qualifying quarter
- Identify W-2 employees and qualifying wages
- Apply employee count thresholds (different for 2020 vs 2021)
- Exclude wages used for PPP loan forgiveness
- Calculate health plan expenses (may qualify as wages)
- Apply quarterly wage caps ($10K per employee per quarter in 2021)
Credit Calculation & Documentation
Calculate credit amounts and prepare supporting documentation
- Calculate 50% (2020) or 70% (2021) of qualifying wages
- Prepare quarter-by-quarter credit calculations
- Document government orders, revenue calculations, and wage records
- Prepare technical memorandum supporting qualification
Form 941-X Preparation
Complete amended quarterly payroll tax returns to claim credits
- Prepare Form 941-X for each qualifying quarter
- Complete proper sections (worksheet and explanation)
- Attach supporting schedules and documentation
- Calculate refund amounts (credits exceed payroll taxes)
Filing & Audit Protection
File amended returns and maintain audit-ready records
- Submit Form 941-X to IRS (separate envelope for each quarter)
- Track IRS processing and refund status
- Maintain comprehensive audit defense files
- Respond to any IRS inquiries with documented support
Key Deadlines
2020 ERC Claims Deadline
Last day to file amended Form 941-X for 2020 quarters (Q2-Q4 2020)
Applies to: Deadline has passed
2021 ERC Claims Deadline
Last day to file amended Form 941-X for 2021 quarters (Q1-Q3 2021)
Applies to: Final opportunity for retroactive claims
Common Mistakes to Avoid
Missing Retroactive Deadline
Forfeiting up to $26K per employee—potentially millions for larger businesses
File retroactive 2021 claims before April 15, 2025 deadline (2020 deadline has passed)
Double-Dipping with PPP
IRS clawback of credits plus penalties and interest from claiming ERC on same wages used for PPP
Careful coordination to claim ERC only on wages NOT used for PPP forgiveness
Inadequate Documentation
Credit disallowance during IRS audit, repayment with penalties without proper records
Comprehensive documentation of shutdown orders, revenue comparisons, and wage calculations
Falling for ERC Scams
Fraudulent claims leading to repayment, penalties, and potential criminal liability
Work with qualified tax professionals who properly assess eligibility before filing claims
Conservative ERC Approach
Given IRS scrutiny of ERC claims, we take a conservative, well-documented approach
Proper Eligibility Assessment
Thorough evaluation of government orders and revenue decline—no aggressive positions
PPP Coordination
Careful tracking to avoid double-dipping between ERC and PPP loan forgiveness
Audit Defense Files
Comprehensive documentation prepared for potential IRS examination—audit-ready from day one
Frequently Asked Questions
Is it too late to claim the Employee Retention Credit?
2020 claims are no longer possible (April 15, 2024 deadline passed), but 2021 claims can still be filed until April 15, 2025 via amended Form 941-X. This is the last opportunity for retroactive ERC claims.
How much is the ERC worth?
2020: Up to $5,000 per employee for the year. 2021: Up to $7,000 per employee per quarter for Q1-Q3 ($21,000 total). Combined maximum across both years: $26,000 per employee who was employed during qualifying periods.
What are the qualification tests?
Two ways to qualify: (1) Full or partial government shutdown order that impacted operations, OR (2) Significant revenue decline—50% drop in 2020 or 20% drop in 2021 compared to same quarter in 2019. You only need to meet one test.
Can I claim ERC if I received a PPP loan?
Yes, but you cannot claim ERC on the same wages used for PPP loan forgiveness. Proper coordination is critical to avoid IRS penalties. We track PPP forgiveness wages and claim ERC only on non-overlapping wages.
What wages qualify for the ERC?
Qualified wages include W-2 wages and qualified health plan expenses. For businesses with more than 100 employees (2020) or 500 employees (2021), only wages paid to employees NOT providing services qualify. Smaller businesses can claim all wages.
How do I claim the ERC retroactively?
File Form 941-X (Adjusted Employer's Quarterly Federal Tax Return) for each qualifying quarter. The IRS processes these as refund claims, typically issuing checks within 6-12 months (though processing has been delayed).
Why is the IRS scrutinizing ERC claims?
The IRS has identified widespread fraud in ERC claims, often promoted by aggressive marketing companies making unrealistic promises. Conservative, well-documented claims from legitimate tax professionals are still being honored.
What documentation do I need?
Government shutdown orders affecting your business, quarterly revenue comparisons to 2019, payroll records showing qualified wages, PPP loan forgiveness documentation, and employee counts. We prepare a comprehensive audit defense file.
How long does it take to receive the ERC refund?
IRS processing times vary from 6-12 months, though some claims are experiencing longer delays due to increased scrutiny. Claims with proper documentation typically process faster than questionable claims.
Should I file an ERC claim if I'm unsure about eligibility?
Given IRS scrutiny, only file claims where you clearly qualify under government shutdown orders or revenue decline tests. Aggressive or questionable claims risk audit, repayment, penalties, and interest. We take a conservative approach.
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Determine if you qualify for retroactive ERC claims before the April 15, 2025 deadline