Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable tax credit for businesses that continued to pay employees while either shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

Only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021.

Employee Retention Credit - 2020 vs 2021 Comparison Chart

Who Is Eligible

An employer is eligible for the ERC if it:

• Sustained a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 and orders from an appropriate governmental authority or
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or
• Qualified in the third or fourth quarters of 2021 as a recovery startup business.

Limitations

• Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can't be claimed for the ERC in any tax period.

How to Claim

Follow guidance for the period when qualified wages were paid:

• After March 12, 2020, and before Jan. 1, 2021
  • Notice 2021-20
  • Notice 2021-49
  • Revenue Procedure 2021-33
• After Dec. 31, 2020, and before July 1, 2021
  • Notice 2021-23
  • Notice 2021-49
  • Revenue Procedure 2021-33
• After June 30, 2021, and before Oct. 1, 2021
  • Notice 2021-49
  • Revenue Procedure 2021-33
• After Sept. 30, 2021 and before Jan. 1, 2022
  • Notice 2021-49
  • Notice 2021-65

Forms and Instructions

Use the revision date for the relevant tax period:

• Form 941-X Instructions April 2022 RevisionPDF
• Form 941 Instructions December 2021 RevisionPDF
• Form 941 Instructions 2020 RevisionsPDF
• Form 943PDF
• Form 943-XPDF
• Form 944PDF
• Form 944-XPDF
• Form CT-1PDF
• Form CT-1-X InstructionsPDF

Beware of Third-Party ERC Schemes

Employers should be wary of third parties advising them to claim the ERC when they may not qualify. For details see News Release IR-2023-40, IRS issues renewed warning on Employee Retention Credit claims; false claims generate compliance risk for people and businesses claiming credit improperly and COVID Tax Tip 2022-170.

To report tax-related illegal activities relating to ERC claims, submit by fax or mail a completed Form 14242, Report Suspected Abusive Tax Promotions or PreparersPDF and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, CA 92677-3405
Fax: 877-477-9135

Penalty Relief

Get information on penalty relief related to claims for the Employee Retention Credit.

More Information

The Employee Retention Credit Frequently Asked Questions provide historical information about the credit and do not reflect the current status of the credit.