Can I still claim the Employee Retention Credit?

What it is

The Employee Retention Credit was a refundable payroll tax credit for employers that kept paying employees during the COVID-19 pandemic and that had a qualifying full or partial suspension of operations, or a significant decline in gross receipts, or that were recovery startup businesses. For most employers it covered wages paid from March 13, 2020 through September 30, 2021; only recovery startup businesses could claim the fourth quarter of 2021.

The program has ended, and the windows for claiming it have closed. This page is for businesses deciding what to do about a claim already filed, and for anyone being offered a new claim.

What the law says

Employers claimed the credit on original or amended employment tax returns (usually Form 941-X). Because quarterly returns for a year are treated as filed on April 15 of the following year, the general three-year period for amending ended on April 15, 2024 for 2020 quarters and April 15, 2025 for 2021 quarters.

Section 70605 of P.L. 119-21 added more limits for the third and fourth quarters of 2021. Under §70605(d), the IRS may not allow or refund those credits after July 4, 2025 if the claim was filed after January 31, 2024. The same section extends the period for assessing erroneous credits for those quarters to six years from the latest of the return due date, the return filing date, or the claim filing date, and imposes a due diligence penalty of $1,000 per failure on certain promoters who help with claims for a fee tied to the refund.

Requirements and tests

A claim was legitimate only if these conditions were met:

• The employer had a qualifying government order that fully or partially suspended operations, a qualifying decline in gross receipts, or recovery startup status for the quarter.
• Supply chain disruptions qualified only in narrow cases, as explained in IRS guidance.
• Wages used for the credit were not also used for Paycheck Protection Program loan forgiveness or other credits.
• The employer reduced its wage deduction by the credit, which usually requires amending the income tax return for the year the wages were paid.
• The claim was filed on time, and for Q3 or Q4 2021, before February 1, 2024 or allowed before July 5, 2025.

How it works

If a claim is still pending, the first question is eligibility. If the claim is not eligible and has not been paid, the IRS claim withdrawal process lets you withdraw it; a withdrawn claim is treated as if it had never been filed. The IRS has said that withdrawing a Q3 or Q4 2021 claim that was originally filed by January 31, 2024 is processed normally.

If a credit was paid and the employer was not eligible, the employer should consider repaying it and amending the related income tax return, because the IRS can assess the credit with interest and penalties. For Q3 and Q4 2021, the six-year assessment period means exposure can last into 2030 for claims filed in early 2024.

If you are offered a new claim today, no payment can result from it, although a fee agreement may still require payment.

Risks and IRS scrutiny

The IRS has warned about aggressive ERC marketing for several years and has named it on past Dirty Dozen lists, disallowed large numbers of claims, and opened criminal investigations. Warning signs include contingency fees based on the refund, little or no review of eligibility, broad claims that supply chain issues qualify any business, and pressure to sign quickly. Erroneous claims can lead to repayment, interest, the 20% accuracy-related penalty or the 20% erroneous refund claim penalty under IRC §6676, and, for fraud, civil or criminal penalties.

If you receive an IRS letter disallowing a claim, the letter explains your appeal rights and deadlines; respond on time and keep the documents that supported eligibility.

Who it is not for

This page is not for employers hoping to file a new claim; that window is closed. Nor is it for anyone who wants a promoter's assurance instead of a documented eligibility review.

It is also not for employers who believe a claim was wrongly denied but have not kept the records that support eligibility; rebuilding that file comes first.

How ebotCPA helps

We review filed claims for eligibility and timing, determine whether a withdrawal, repayment, or amended income tax return is appropriate, and represent employers in ERC examinations.

Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.

Primary sources

1. P.L. 119-21, §70605. Enforcement provisions for COVID-related employee retention credits.

   Bars late Q3 and Q4 2021 claims, extends the assessment period to six years, and adds promoter due diligence penalties.

2. IRS FAQs on ERC compliance provisions of P.L. 119-21. IRS explanation of §70605.

   “prevents the IRS from allowing or refunding ERCs after July 4, 2025, for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024”

   Explains the claim bar and the treatment of withdrawals.

3. 26 U.S.C. §3134. Employee retention credit for 2021 Q3 and Q4.

   The Code section under which credits for the third and fourth quarters of 2021 were allowed.

4. 26 U.S.C. §6676. Erroneous claim for refund or credit.

   Imposes a 20% penalty on excessive refund claims without reasonable cause.

5. IRS Employee Retention Credit page. Eligibility, withdrawals, and warning signs.

   IRS guidance on eligibility, claim withdrawals, and aggressive marketing.

6. IRM 4.23.1. Employment Tax Objectives, Organization, and IRM 4.23.

   Overview of how the IRS examines employment tax returns, including credit claims.

7. IRM 20.1.5. Return Related Penalties.

   Explains how examiners determine and assert accuracy-related penalties under IRC §6662, including the 40% gross valuation misstatement penalty.

Frequently asked questions