Employee Retention Credit

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The Employee Retention Credit (ERC) – sometimes called the Employee Retention Tax Credit or ERTC – is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic.

The requirements are different depending on the time period for which you claim the credit. The ERC is not available to individuals.

For more information see:

Beware of ERC scam promotions

Employers should be wary of ERC advertisements that advise them to "apply" for money by claiming the ERC when they may not qualify. As a reminder, anyone who improperly claims the credit has to pay it back and may owe penalties and interest. The only way to claim the ERC is on a federal employment tax return.

The ads are all over radio, TV and social media. You may even get ads that look like official government letters, or texts, emails and phone calls advertising ERC eligibility.

Warning signs of aggressive ERC marketing

The Employee Retention Credit is a complex credit that requires careful review before applying, so be wary of:

  • Unsolicited ads, calls, emails or texts from someone you don't know.
  • Statements that the promoter or company can determine your ERC eligibility within minutes.
  • Large upfront fees to claim the credit.
  • Fees based on a percentage of the refund amount of Employee Retention Credit claimed – you should always avoid a tax preparer basing their fee on the amount of the refund.
  • Statements from the promoter that you qualify for the credit before any discussion about your tax situation.
  • Statements from the promoter urging you submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.

These promoters may lie about eligibility requirements. In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer's identity or take a cut of the taxpayer's improperly claimed credit.

For details about ERC scams, see News Release IR-2023-105, IRS alerts businesses, tax-exempt groups of warning signs for misleading Employee Retention scams; simple steps can avoid improperly filing claims

Eligibility highlights

The credit is available to eligible employers that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Eligibility and credit amount vary depending on when the business impacts occurred. The ERC is not available to individuals.

Generally, businesses and tax-exempt organizations that qualify are those that:

  • Were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021, or
  • Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021, or
  • Qualified as a recovery startup business for the third or fourth quarters of 2021

Eligible employers must have paid qualified wages to claim the credit.

Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

For help with figuring out if you may be eligible to claim the ERC, see the Employee Retention Credit Eligibility Checklist and the Frequently asked questions about the Employee Retention Credit.

For more information about eligibility and credit amounts, see the Employee Retention Credit - 2020 vs 2021 Comparison Chart.

Limitations

Certain limitations apply to the ERC. For example, employers can't claim the ERC on wages that were reported as payroll costs for Paycheck Protection Program loan forgiveness. Qualified wages for purposes of the ERC do not include payroll costs in connection with shuttered venue operators grants or restaurant revitalization grants.

Definitions of eligibility terms:

  • Notice 2021-20
    • Sections III.C. and III.D., Questions and Answers 10 through 22 – Suspension of operations due to orders from an appropriate governmental authority
    • Section III.E., Questions and Answers 23 through 28 – Decline in gross receipts during 2020
  • Notice 2021-23
    • Section III.C – Decline in gross receipts during the first three calendar quarters of 2021
  • Notice 2021-49
    • Section III.D – Recovery startup business for third and fourth calendar quarters of 2021

Need help?

If you need help claiming the credit or correcting your tax return, see tips for choosing a tax professional.

How to claim

Eligible businesses that didn't claim the credit when they filed their original employment tax return can claim the credit by filing adjusted employment tax returns. For example, businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for RefundPDF, to claim the credit for prior 2020 and 2021 quarters.

Reminder: If you file Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit for that same tax period. Therefore, you may need to amend your income tax return (for example, Forms 1040, 1065, 1120, etc.) to reflect that reduced deduction

For more information, see:

Forms and instructions

To claim or correct your credit by adjusting your employment tax return, use the adjusted return and instructions that apply to your business or organization and the relevant tax period:

For employers that file quarterly:

For agricultural employers:

For employers that file annually:

For railroad employers:

Penalty relief

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

Report tax-related illegal activities

The IRS encourages people to report:

  • Tax-related, illegal activities relating to ERC claims
  • Individuals who promote improper and abusive tax schemes
  • Tax return preparers who deliberately prepare improper returns

To report tax-related illegal activities relating to ERC claims, take these steps:

  1. Complete Form 14242, Report Suspected Abusive Tax Promotions or PreparersPDF 
  2. Include with your form any supporting materials
  3. Provide your contact information: This is optional but will be helpful if we have questions and will let us acknowledge receipt of your referral.
  4. Send your form and materials by fax or U.S. mail to the IRS Lead Development Center in the Office of Promoter Investigations

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

More information

Find guidance by the period when qualified wages were paid:

Historical information

Congress passed legislation that modified the ERC after it was first enacted. If you need historical information about claiming an advance payment of the ERC in its first version, see Employee Retention Credit Frequently Asked Questions. These FAQs do not reflect the current status of the credit.

 

Don’t Fall for Employee Retention Credit Scams

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Page Last Reviewed or Updated: 15-Sep-2023