The Employee Retention Credit (ERC) – sometimes called the Employee Retention Tax Credit or ERTC – is a refundable tax credit for certain eligible 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.
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Check your eligibility for the credit
- ERC Eligibility Checklist: Help understanding this complex credit
- IRS partners: You can also use the printable versionPDF of the ERC Eligibility Checklist to help constituents, clients or others see if they may be eligible for the ERC.
Withdraw an ERC claim
- Withdraw an Employee Retention Credit (ERC) claim – if your ERC hasn’t been paid but you want to withdraw your claim
Apply for the ERC Voluntary Disclosure Program
- Employee Retention Credit – Voluntary Disclosure Program – if you received an incorrect ERC and want to pay it back
Get answers to your ERC questions
The latest frequently asked questions (FAQs) for ERC regarding eligibility, withdrawing an ERC claim, the ERC Voluntary Disclosure Program, recordkeeping and scams.
If you need help or advice about claiming the credit, correcting your tax return, withdrawing your ERC claim or applying for the ERC-VDP, the IRS urges you to seek out a reputable tax professional.
Educational sessions for tax professionals
Starting in February 2024, IRS Criminal Investigation special agents are hosting a series of educational sessions for tax professionals who may have claimed the ERC for their clients on previous years’ tax returns. The sessions are part of a nationwide initiative to ensure that tax professionals have the latest information about ERC claims and understand ERC eligibility criteria.
On this page
- Beware of ERC scams
- Eligibility highlights
- How to claim the ERC
- Penalty relief
- Reporting tax-related illegal activities
- News about how the IRS is protecting taxpayers and increasing compliance efforts
- Guidance by period when the qualified wages were paid
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 incorrectly 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
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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.
- Pressure to accept a promoter’s offer of a refund anticipation loan.
- 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 incorrectly receiving the credit could have to repay the credit – along with substantial interest and penalties.
These promoters may lie about eligibility requirements. In addition, using these companies could put you at risk of someone using the credit as a ploy to steal your identity or take a cut of an incorrectly claimed credit that you’d need to pay back.
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.
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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
How to claim the ERC
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:
- Notice 2021-20, Section III.L., Question and Answer 60
- Notice 2021-49, Section IV.C., Timing of Qualified Wages Deduction Disallowance
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:
- Form 941-X, April 2023 RevisionPDF
- Form 941-X Instructions, April 2023 RevisionPDF
- Form 941 Instructions, December 2021 RevisionPDF for additional information related to the ERC for quarters in 2021
- Form 941 Instructions 2020 RevisionsPDF for additional information related to the ERC for quarters in 2020
For agricultural employers:
- Form 943-XPDF
- Form 943-X Instructions, February 2023 RevisionsPDF
- Form 943 Instructions, December 2021 RevisionPDF for additional information related to the ERC for quarters in 2021
For employers that file annually:
- Form 944-XPDF
- Form 944-X Instructions, February 2023 RevisionsPDF
- Form 944 Instructions, December 2021 RevisionPDF for additional information related to the ERC for quarters in 2021
For railroad employers:
- Form CT-1XPDF
- Form CT-1X Instructions, March 2023 RevisionsPDF
- Form CT-1 Instructions, January 2022 RevisionPDF for additional information related to the ERC for quarters in 2021
- Form CT-1 InstructionsPDF for additional information related to the ERC for quarters in 2020
Penalty relief
Get information on penalty relief related to claims for the Employee Retention Credit.
Reporting tax-related illegal activities
The IRS encourages people to report:
- Tax-related, illegal activities relating to ERC claims
- Individuals who promote incorrect information and abusive tax schemes
- Tax return preparers who deliberately prepare incorrect returns
To report tax-related illegal activities relating to ERC claims, see the steps in the ERC Scams section of the frequently asked questions about ERC.
News about how the IRS is protecting taxpayers and increasing compliance efforts
- News release: IRS continues work on Employee Retention Credit; new IRS CI education sessions come as agency urges businesses to review VDP, withdrawal program for questionable claims
- News release: IRS: New Voluntary Disclosure Program lets employers who received questionable Employee Retention Credits pay them back at discounted rate; interested taxpayers must apply by March 22
- News release: IRS expands work on aggressive Employee Retention Credit claims; 20,000 disallowance letters being mailed, more action and voluntary disclosure program coming
- News release: IRS announces withdrawal process for Employee Retention Credit claims; special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams
- Fact sheet: Help for businesses: Steps for withdrawing an Employee Retention Credit claim
- News release: To protect taxpayers from scams, IRS orders immediate stop to new ERC processing amid surge of questionable claims
Guidance by the period when qualified wages were paid:
- March 13, 2020, to Dec. 31, 2020
- Notice 2021-20
- Notice 2021-49, Section IV. Guidance on Miscellaneous Issues Applicable to the Employee Retention Credit for Both 2020 and 2021
- Revenue Procedure 2021-33
- Jan. 1, 2021, to June 30, 2021
- Notice 2021-23
- Notice 2021-49, Section IV. Guidance on Miscellaneous Issues Applicable to the Employee Retention Credit for Both 2020 and 2021
- Revenue Procedure 2021-33
- July 1, 2021, to Sept. 30, 2021
- Notice 2021-49
- Revenue Procedure 2021-33
- Oct. 1, 2021, to Dec. 31, 2021
- Notice 2021-49
- Notice 2021-65
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.
Source: https://t-tees.com
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