Key insights
- The IRS has issued multiple warnings to taxpayers not to fall for schemes related to the employee retention credit (ERC).
- Many employers may still qualify for the credit and have time to file their Form 941X — assuming they meet the eligibility test and have wages related to the credit.
- The deadline to claim the employee retention credit is April 15, 2025, but changes to legislation under the new presidential administration could impact that.
Get help determining eligibility and calculating your credit.
While nearly all pandemic relief programs have run their course, it’s worth keeping an eye on the employee retention credit (ERC) — there’s still time to claim the ERC on amended tax returns.
The ERC is a fully refundable payroll tax credit for wages paid during the COVID-19 public health emergency. Under current law, the final deadline for filing 2021 ERC claims is April 15, 2025.
Stay tuned for the latest guidance as eligibility may evolve under the new presidential administration.
Still time to benefit from employee retention credits
Many employers may still qualify for the ERC and have time to file their Form 941X — assuming they meet the eligibility test and have wages related to the credit.
To be an eligible employer, the organization must have experienced a significant decline in gross receipts or been more than nominally impacted by a government order fully or partially suspending business operations.
Claiming the employee retention tax credit
If you meet the eligibility criteria and paid eligible wages during qualifying periods, the ERC is still available to claim on an amended payroll tax return for three years after the original filing deadline — which is April 15, 2025, for the 2021 tax year — so there is still time to consult with a trusted advisor prior to filing for and claiming the credit.
This gift of time allows you to properly assess your eligibility to claim up to $7,000 per employee per quarter for the first three quarters of 2021.
False ERC claims can generate compliance risks
The IRS has issued multiple warnings to taxpayers not to fall for schemes related to the employee retention credit (ERC).
Taxpayers were urged to fully consider their eligibility for the credit prior to amending payroll tax returns. Incorrect claims may be subject to significant interest and penalties.
What to consider when the IRS decides to audit your credit: The IRS can audit a credit within five years after it has been filed, and they may ask for proof of eligibility, backup of gross receipts, and proof of impact due to government orders in order to prove their safe harbor.
Review key employee retention credit considerations
Document your decision points to protect and, if necessary, defend your claim with the IRS.
- Can you prove you experienced a significant decline in gross receipts or were subject to a full or partial suspension of operations?
- If you were under a full or partial suspension of operations, can you point to the governmental order that triggered your suspension of operations, as well as produce records used to determine whether the order had a more than nominal effect on your operations?
- Have you computed and documented your average number of full-time employees in 2019, in order to demonstrate whether you qualify as a large employer subject to limitations of available wages?
- Do your credit computations include wage amounts and show how qualified health plan expenses were calculated?
- If you are a member of an aggregated group, can you show how aggregation affected the eligibility for and distribution of the ERC?
- If you received a Paycheck Protection Program (PPP) loan, have you analyzed your wage allocation across PPP loan forgiveness and ERC?
Answers to your ERC questions
A: Most qualified tax professionals will have prepared documentation for valid ERC eligibility claims and calculations. If you’re uncertain about your qualification for the credit or whether you have the support needed in the event of an IRS examination, please contact us or reach out to your CLA advisor.
A: If you qualify based on a Q1 decline in gross receipts, then you automatically qualify for Q2. However, if your Q1 qualification is based on a Q4 2020 decline in receipts, then you will not automatically qualify for Q2 2021.
A: You may qualify for both PPP and ERC if you are deemed an eligible employer; however, you may not use the same wages for PPP forgiveness and the ERC.
A: For an organization subject to a government order that limited its activity, IRS Notice 2021-20 requires the order to have limited the organization’s ability to provide goods and services by at least 10% compared to the same period in 2019.
The limited service must be at least 10% of the overall revenue or hours in 2019, and the organization must not have pivoted to perform the service in a substantially similar way (e.g., a drive-through or via computer/virtual).
A: Any of the eligibility tests must be considered for the organization in the aggregate — not just one service line or location.
A: The tax return for the organization must be amended in the year the credit was generated, under IRS Notice 2021-49. If the Form 941X is amended in 2020 and another in 2021, then both the 2020 and 2021 federal income tax returns must be amended.
A: The base period for eligibility comparisons is 2019, regardless of whether an organization is considering the 2020 or the 2021 credit.
A: The American Rescue Plan Act extended the window to five years for the IRS to review certain ERC filings.
A: Religious organizations can claim the ERC credit on Form 941X as a refundable payroll tax credit.
A: Yes, you may claim the credit if you qualify based on a partial shutdown or if you qualify based on gross receipts, but you are not required to meet both tests.
Other tax credit opportunities
If you're not eligible for the ERC or have already received funds, other relevant tax savings opportunities may still be available to your business.
While not all federal tax credit programs are as lucrative or refundable like the ERC, there are many impactful, long-term opportunities — including the Work Opportunity Tax Credit, Federal Empowerment Zone credits, and training programs for employers investing in their workforce.
Many states enhanced their state credits and available discretionary benefit programs. It is imperative employers meet with qualified advisors to understand these opportunities as well as the processes in place to capture them.
How CLA can help you navigate tax credits
Taking advantage of tax credits can be a full-time job. We can help you determine eligibility for the ERC, calculate your appropriate credit, and offer tax planning strategies you can use to create opportunities for even more savings.
Our CLA tax professionals work with employers to identify eligible employees, collect supporting information, submit the required tax forms, and compute the dollar amount of the credit.
Contact us
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