- Quick Answer: Can I Still Claim the ERTC Tax Credit in 2024–2026?
- Overview of the Employee Retention Tax Credit (ERTC)
- How Much Is the ERTC Tax Credit Worth?
- Who Qualifies for the ERTC Tax Credit?
- How to Claim the ERTC Tax Credit
- Is the ERTC Tax Credit Taxable, and How Is It Reported?
- Special ERTC Considerations and Examples
- Frequently Asked Questions About the ERTC Tax Credit
The employee retention tax credit remains one of the most valuable—and most misunderstood—pandemic relief programs available to businesses. Whether you’re exploring a first-time claim or reconsidering a past filing, understanding how this refundable tax credit actually works is essential before any deadline passes.
This guide breaks down everything you need to know about ERTC eligibility requirements, claiming procedures, tax reporting, and the current IRS enforcement landscape.
Quick Answer: Can I Still Claim the ERTC Tax Credit in 2024–2026?
The employee retention credit, also called the employee retention credit ERC, applies only to qualified wages paid during specific periods: March 13, 2020 through September 30, 2021 for most eligible employers, and through December 31, 2021 for businesses that qualify as a recovery startup business. The program itself ended in late 2021, but retroactive claims remain possible for businesses that haven’t yet filed.
Your filing deadline depends on which tax year you’re claiming. You generally have until April 15, 2024 to amend 2020 quarterly employment tax returns and until April 15, 2025 to amend 2021 returns. These deadlines stem from the three-year statute of limitations measured from the original Form 941 due date.
Here’s what you need to know about the current claiming environment:
- As of late 2023, the Internal Revenue Service paused processing most new ERC claims due to widespread fraud concerns. Check the most recent IRS notices for current processing status.
- The IRS launched an ERC Voluntary Disclosure Program allowing employers to repay ineligible claims at reduced penalties.
- A formal withdrawal process exists for pending or recently paid claims that employers believe may be incorrect.
- Aggressive “ERC mill” promoters promising guaranteed refunds remain heavily scrutinized—proceed with caution.
The ERTC is a tax credit, not a loan. It never requires repayment if your eligibility holds. However, improper claims may need to be returned along with accuracy-related penalties (up to 20%), potential fraud penalties (up to 75%), and interest at underpayment rates.
Overview of the Employee Retention Tax Credit (ERTC)
The CARES Act, signed into law on March 27, 2020, created the employee retention tax credit to encourage businesses to continue paying employees during COVID-19 disruptions. This economic security measure was part of the broader $2.2 trillion relief package designed to help employers retain employees amid unprecedented shutdowns.
The credit is a fully refundable tax credit against the employer’s share of Social Security taxes on qualified wages paid during designated periods:
- March 13, 2020 through December 31, 2020 under the original CARES Act
- January 1, 2021 through September 30, 2021 under the Consolidated Appropriations Act and American Rescue Plan Act
- Through December 31, 2021 only for recovery startup businesses meeting specific criteria
Mechanically, the ERTC reduces an employer’s 6.2% Social Security tax liability under FICA. Any excess credit beyond what’s owed becomes a refundable credit paid directly to the employer in cash.
The Infrastructure Investment and Jobs Act, signed November 15, 2021, accelerated the program’s end date to September 30, 2021 for most employers. Despite this termination, businesses can still file amended returns for past quarters—subject to the filing deadline constraints discussed later.
Both for-profit companies and tax exempt organizations can qualify for this credit. However, government entities at the federal, state, and local levels generally cannot claim it, with limited exceptions for certain public colleges and facilities referenced in early IRS guidance through Notices 2021-20 and 2021-49.
How Much Is the ERTC Tax Credit Worth?
The maximum credit varies significantly between 2020 and 2021, and your actual benefit depends on how much you paid in qualified wages and allocable health plan expenses.
2020 Credit Calculation
For wages paid in 2020, the credit equals 50% of up to $10,000 in qualified wages per employee for the entire year. This creates a maximum credit of $5,000 per eligible employee for all of 2020 combined.
The “large employer” threshold for 2020 is based on having more than 100 full-time employees during 2019, using the Affordable Care Act definition of 30+ hours per week. Large employers can only claim the credit on wages paid to employees receiving wages while not providing services. Small employers (100 or fewer full-time employees) can claim on all employee wages during qualifying periods.
2021 Credit Calculation
The 2021 rules became significantly more generous. The credit increased to 70% of up to $10,000 in qualified wages per employee, per quarter. This structure allows for:
- A maximum of $7,000 per employee per quarter
- Up to $21,000 per employee for Q1 through Q3 2021
- Up to $28,000 per employee if the business qualifies as a recovery startup for Q4 2021
The large employer threshold also expanded to more than 500 full-time employees in 2019, meaning more businesses qualified as “small” and could claim credits on all wages paid rather than just wages for non-working employees.
What Counts as Qualified Wages?
Qualified wages paid include both cash compensation and allocable health plan expenses. Importantly, you can count health insurance costs even for furloughed workers who received no cash wages during the period—the business just needed to maintain their coverage through the second quarter and later eligible periods.
The actual amounts paid depends on meeting the suspension or gross receipts tests, which we’ll cover next.
Who Qualifies for the ERTC Tax Credit?
An employer qualifies for the ERTC through one of two primary paths: experiencing a full or partial suspension of business operations due to a governmental authority order, or demonstrating a significant decline in gross receipts compared with 2019.
The Suspension Test
To qualify under the suspension test, your trade or business must have been subject to government orders from a federal, state, or local governmental authority that limited commerce, travel, or group meetings due to COVID-19. Critically, these orders must have had more than a nominal effect on operations, leaving some businesses partially suspended during restrictions.
Examples of partial suspension include:
- Capacity restrictions reducing seating or occupancy
- Mandated closures of specific locations or departments
- Requirements to shift to remote work that materially affected revenue
- Limits on business operations that reduced service capacity
The IRS has been clear that general supply chain disruptions alone don’t qualify. The impact must be directly traceable to the order itself—something like a state order limiting restaurant capacity to 50%, not simply reduced customer traffic.
The Gross Receipts Test
For 2020, a calendar quarter generally qualifies if your gross receipts dropped below 50% compared with the same calendar quarter in 2019. Eligibility continues until quarterly gross revenue recovers above 80% of the comparable 2019 quarter.
For 2021, the threshold became more accessible: quarterly gross revenue must be less than 80% of the same quarter in 2019 (only a 20% decline required). The law also allows an alternative quarter election, letting employers use the immediately preceding quarter’s comparison if more favorable, especially during the third quarter of 2021.
Who Cannot Claim?
Several categories face restrictions:
- Self employed individuals cannot claim the credit on their own wages or self-employment income, though they may claim for W-2 staff they employ
- Wages paid to certain majority owners and their family members (spouses, children under 21) often don’t qualify under related-party rules
- Government entities at federal, state, and local levels are generally excluded, with narrow exceptions for some public universities and hospitals in earlier guidance
Even essential businesses that remained fully operational can qualify through the gross receipts decline test. You didn’t need to shut down completely—a decline in gross receipts meeting the threshold is sufficient.
One important note: aggregation rules require related companies under common ownership (typically 80% or more) to be treated as a single employer for determining employee counts and gross income thresholds.
Interaction of ERTC with PPP Loans and Other Relief
Early CARES Act rules originally barred companies received PPP loans from claiming the ERTC. This changed when the Consolidated Appropriations Act, enacted December 27, 2020, retroactively permitted both—but with critical restrictions.
An employer cannot “double dip” by using the same wages for both paycheck protection program loan forgiveness and the ERTC. Wages must be carefully allocated between programs to avoid overlap.
Similarly, if you claimed Families First Coronavirus Response Act (FFCRA) paid sick and family leave credits, those same wages cannot also support your ERTC claim.
Practical Example: A retail business received a $100,000 PPP loan in Q2 2020 and had it fully forgiven based on Q2 payroll costs. That business cannot claim the employee retention credit on those same Q2 wages. However, if the business experienced a qualifying suspension in Q3 2020 and paid $80,000 in wages that quarter, those Q3 wages could support an ERTC claim since they weren’t used for PPP forgiveness.
How to Claim the ERTC Tax Credit
Understanding the filing process is essential whether you’re filing an original claim or pursuing a retroactive adjustment.
Original Claims
Eligible employers originally claimed the credit on Form 941 (Employer’s Quarterly Federal Tax Return) by reporting:
- Total qualified wages and qualifying health plan expenses
- The resulting credit amount offsetting the employer’s portion of Social Security and medicare taxes
- Any excess credit creating a refund
Employers could previously reduce payroll tax deposits in anticipation of the credit or request an advance payment through Form 7200. However, advance payments are no longer available—current focus is entirely on amending past returns.
Retroactive Claims via Form 941-X
Most businesses claiming now use Form 941 X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for each quarter in 2020 or 2021 where they’re newly claiming or adjusting the credit.
Key procedural points:
- Form 941-X must be filed on paper—electronic filing isn’t available
- A separate Form 941-X is required for each quarter being amended
- Processing times have stretched significantly, often 6-12+ months due to IRS backlog and compliance reviews
- The IRS reported over 1.6 million backlogged claims by 2024
Documentation Requirements
Maintain thorough records to support any claim:
- Copies of governmental shutdown orders applicable to your location
- Detailed gross receipts calculations by quarter comparing 2020/2021 to 2019
- Payroll reports showing wages paid, employee counts, and health plan costs
- PPP forgiveness calculations demonstrating wage allocation between programs
- Written memos explaining how eligibility determinations were made
Important: Be extremely cautious of contingency-fee promoters who promise “guaranteed” ERTC refunds without conducting proper eligibility analysis. The IRS has identified that 80-90% of claims it audited showed improper amounts, often traced to aggressive “ERC mill” promoters. Working with a licensed CPA or tax professional familiar with your business provides far better protection.
Key Filing Deadlines for ERTC Claims
Amended employment tax return filings on Form 941-X must generally be submitted within three years of the original Form 941 due date. The IRS typically measures this from April 15 following the calendar year.
Specific deadlines:
- 2020 ERTC claims: Deadline generally April 15, 2024
- 2021 ERTC claims (Q1–Q3, and Q4 for recovery startups): Deadline generally April 15, 2025
Some practitioners calculate using actual Form 941 filing dates for precision, but the April 15 benchmarks match IRS reminders and serve as the common rule-of-thumb.
These statutes of limitations are strictly enforced. Claims filed after deadlines are typically rejected without exception, and equitable tolling is rarely granted.
Is the ERTC Tax Credit Taxable, and How Is It Reported?
While the ERTC itself isn’t “taxable income” in the traditional sense, it affects your income tax return by reducing the payroll expense deduction you can claim. This reduction can increase your gross income for the tax year in question.
Here’s how it works: the amount of ERTC claimed for a given year must reduce the wage deduction on your corresponding income tax return. If you claim $50,000 in ERTC for 2021, you must reduce your 2021 payroll deductions by $50,000. For a business in the 21% corporate bracket, this adds roughly $10,500 to tax liability.
This adjustment is required even if your refund arrives in a later year. The reduction relates to when the credit was earned, not when the cash hits your account.
For businesses that filed income tax returns before claiming ERTC on amended payroll returns, this often necessitates filing amended income tax returns (such as Form 1040X for individuals or amended corporate returns) to properly reflect the reduced wage deduction.
How to Report ERTC on Common Tax Returns
The specific line numbers evolve with form updates, but the general approach remains consistent across entity types:
S-Corporations: Report the reduction in wages on Form 1120-S, typically affecting line 8 for salaries and wages. The resulting income impact flows through to shareholders on Schedule K-1. Explanatory statements may be attached.
Partnerships: Adjust wage amounts on Form 1065. The credit’s income impact passes through to each partner via their Schedule K-1.
C-Corporations: Modify wages on Form 1120, reflecting increased taxable income from the reduced payroll deductions.
Pass-through entities: Form 5884-A has been used in certain contexts for employee retention credit claims reporting. Coordinate with current IRS instructions.
Always reference the most recent IRS form instructions for specific line guidance, as these change periodically.
Special ERTC Considerations and Examples
Several special rules affect how the credit applies to different business situations, including small versus large employer distinctions, family member wages, tipped employees, and single-employee operations.
Single-Employee and Self-Employed Situations
A self-employed owner cannot claim the ERTC on their own wages—the credit explicitly excludes self-employment income. However, a business with even just one W-2 employee who isn’t a related owner may qualify for the credit on that employee’s wages if other eligibility tests are met.
For example, a consultant who employs a single administrative assistant could claim the credit on that assistant’s wages during qualifying periods, provided the business either experienced a qualifying suspension or met the gross receipts decline threshold.
Tipped Wages
Tips subject to FICA (generally more than $20 in a month for an employee) count as eligible wages for ERTC purposes. Restaurants and hospitality businesses can include tipped wages in their qualified wage calculations, subject to all other rules.
Employers may be able to coordinate ERTC with the §45B FICA tip credit, but should avoid using the same wages for multiple credits where prohibited.
2020 Example
Consider a single eligible employee earning $3,000 per month across all four quarters of 2020. Total annual wages: $36,000. However, the ERTC caps qualified wages at $10,000 per employee for all of 2020 combined. At the 50% credit rate:
- Qualified wages capped at $10,000
- Credit calculation: $10,000 × 50% = $5,000 maximum credit for this employee
2021 Example
Now consider that same employee in 2021, earning $4,000 monthly. In each of Q1, Q2, and Q3, they earn $12,000—exceeding the $10,000 quarterly cap. The 70% credit applies per quarter:
- Q1: $10,000 × 70% = $7,000
- Q2: $10,000 × 70% = $7,000
- Q3: $10,000 × 70% = $7,000
- Total 2021 credit: $21,000 for this single employee
Recovery startup businesses meeting specific criteria (began operations after February 15, 2020, annual gross receipts under $1 million) can extend eligibility into Q4 2021, subject to an overall employer cap of $50,000 per quarter.
Recent IRS Enforcement, Voluntary Disclosure, and Claim Withdrawal
The IRS has responded aggressively to widespread improper ERC claims, implementing several enforcement mechanisms:
Processing Moratorium: Beginning September 14, 2023, the IRS paused processing most new claims. While some low-risk claims resumed processing by mid-2024, heightened scrutiny continues.
ERC Voluntary Disclosure Program: Launched in December 2023 and extended through 2024, this program allows employers who received ineligible refunds to repay 85% of the credit received without interest or penalties.
Withdrawal Process: Employers with pending or recently paid claims they believe may be incorrect can formally withdraw through an IRS process. Over 40,000 withdrawals were processed by mid-2024.
Professional guidance is strongly recommended if:
- Your claim was prepared by a third-party promoter using aggressive tactics
- You’re uncertain about ERC eligibility after reviewing IRS criteria
- You need to decide between amending, withdrawing, or entering voluntary disclosure
Keep copies of all IRS correspondence and respond promptly to any ERC audit letters. The IRS has sent inquiry letters to over 20,000 questionable claims and recovered more than $500 million from improper filings. Some reviews also involve agencies connected to public health administration guidance and workplace occupational safety standards during pandemic restrictions.
CTA can help your business evaluate ERTC tax credit eligibility, payroll tax refund opportunities, and documentation requirements. Visit the CTA website today to explore expert guidance for ERC compliance, amended filings, and claim support.
Frequently Asked Questions About the ERTC Tax Credit
Is the Employee Retention Tax Credit a loan that I must pay back?
No. The ERTC is a refundable payroll tax credit, not a loan. If your business qualifies and your claim is accurate, the credit never needs repayment. The refund is yours to keep. However, if the IRS later determines your claim was improper or ineligible, you may need to return the credit along with accuracy-related penalties (typically 20%), potential fraud penalties (up to 75% in egregious cases), and interest calculated at underpayment rates around 8% annually.
Can I still claim the ERTC if I already received a PPP loan?
Yes. The Consolidated Appropriations Act retroactively allowed PPP borrowers to claim the erc for both 2020 and 2021. The critical restriction: you cannot use the same wages for both PPP forgiveness and the ERTC. Wages must be allocated between programs. Many businesses have successfully amended returns to claim the credit on wages not included in PPP forgiveness calculations, sometimes recovering substantial refunds years after initial filings.
What happens if the IRS disallows my ERTC and I already reduced wage deductions on my income tax return?
If the IRS ultimately denies an ERTC claim, existing law provides relief. Following IRS guidance (including Rev. Proc. 2024-14), employers can generally restore the wage deduction either by amending the income tax return for the original year or by increasing wage expense in the tax year the disallowance becomes final. This prevents the need for multiple amended returns across tax years. Consult your tax preparer on the optimal approach for your situation.
How long does it take to receive an ERTC refund after filing Form 941-X?
Processing times have varied dramatically. While the IRS target was historically 90 days, actual processing extended to 6-18+ months during peak backlog periods. The moratorium on new claims and enhanced compliance reviews further complicated timelines. Track your amended return status using the IRS “Where’s My Amended Return?” tool. Keep copies of all filings and any correspondence. Processing has resumed selectively for claims deemed low-risk, but timing remains unpredictable.
What documentation should I keep to support my ERTC claim?
Maintain comprehensive records including:
- Payroll reports showing wages paid and health plan invoices documenting allocable costs
- PPP loan forgiveness records demonstrating which wages were used for forgiveness
- Quarterly profit and loss statements supporting gross receipts decline calculations
- Copies of governmental shutdown orders applicable to your jurisdiction
- Written memos explaining how eligibility determinations were made and tests satisfied
- Correspondence with any third-party preparers
Documentation should substantiate both eligibility (suspension or receipts test) and qualified wage amounts.
Can I fix an ERTC claim that I now believe was filed incorrectly?
Yes, several paths exist depending on your situation. If your claim hasn’t yet been processed, you may be able to withdraw it entirely through the IRS withdrawal process, avoiding audits and penalties. Businesses that already received a refund they believe was improper may use the ERC Voluntary Disclosure Program to repay 85% without interest or penalties—an outcome far more favorable than an audit. If you simply need to correct calculation errors or adjust amounts, filing a corrected Form 941-X may be appropriate. The right path depends on whether refunds were already received, the nature of the error, and your risk tolerance. Professional guidance helps navigate these options effectively.
The employee retention credit represents a meaningful opportunity for businesses that legitimately qualify—but it also carries real risks for those who claimed incorrectly or relied on aggressive promoters. With filing deadlines approaching and IRS enforcement intensifying, now is the time to review your eligibility, verify your documentation, and consult with a qualified tax professional about your specific situation.
