When Did the Employee Retention Credit End?

The Employee Retention Credit (ERC) was a refundable tax credit established to provide financial support to businesses that continued to pay employees during the economic disruptions caused by the COVID-19 pandemic. Introduced as part of the CARES Act in March 2020, the credit aimed to encourage employers to retain their workforce. It allowed eligible employers to offset payroll taxes, providing relief to sustain operations and employment through challenging times.

Defining the End of the Employee Retention Credit

The Employee Retention Credit program concluded earlier than initially anticipated for most employers. While originally extended to cover wages paid through December 31, 2021, legislative changes altered this timeline. The Infrastructure Investment and Jobs Act, signed into law on November 15, 2021, retroactively ended the ERC for wages paid after September 30, 2021. This meant the credit was no longer available for most businesses in the fourth quarter of 2021.

An exception applied to “recovery startup businesses,” which remained eligible to claim the credit through December 31, 2021. A recovery startup business is defined as an employer that began operations after February 15, 2020, and whose average annual gross receipts did not exceed $1 million. These businesses could claim the ERC for qualified wages paid in the fourth quarter of 2021, subject to a maximum credit of $50,000 per quarter. This adjustment provided targeted relief for newer businesses while phasing out the broader program.

Eligibility and Application Deadlines After the End Date

Although the Employee Retention Credit program ended for most employers on September 30, 2021, businesses may still claim the credit for eligible past periods. This involves filing an amended payroll tax return, specifically Form 941-X. The ability to claim the credit retroactively is governed by the statute of limitations for amending tax returns.

For wages paid in 2020, the deadline to file an amended return to claim the ERC was April 15, 2024. For wages paid in 2021, the deadline to file Form 941-X is April 15, 2025. These deadlines generally align with the three-year statute of limitations from the date the original Form 941 was considered filed, typically April 15 of the succeeding year for quarterly returns. This means a window remains open for eligible businesses to secure the credit for prior quarters.

Businesses must ensure they meet all eligibility criteria for the periods claimed. The process requires careful review of gross receipts, governmental orders, and qualified wages for each applicable quarter. Submitting Form 941-X allows businesses to correct previously filed returns and claim the refundable credit, which can result in a refund or reduced payroll tax liabilities.

IRS Initiatives Post-ERC Program Conclusion

Following the Employee Retention Credit program’s conclusion, the Internal Revenue Service (IRS) significantly increased its focus on compliance and enforcement. On September 14, 2023, the IRS announced a moratorium on processing new ERC claims to address backlogs and combat fraud. Claims filed before this date continue to be processed with increased scrutiny, while the moratorium aimed to stem erroneous or fraudulent submissions.

The IRS introduced a Voluntary Withdrawal Program for questionable claims. This program allows employers who filed an ERC claim but have not yet received payment to withdraw their submission without penalty. This initiative aims to provide an avenue for businesses to correct filings if they believe they were ineligible, avoiding future audit actions and penalties.

For businesses that received an ERC refund and later determined ineligibility, the IRS launched a Voluntary Disclosure Program. This program, which had an application deadline of March 22, 2024, allowed eligible employers to repay 80% of the credit received, avoiding penalties and interest. It encouraged self-correction and provided a pathway to mitigate financial consequences of an improper claim, especially for those misled by third-party promoters.

The IRS has intensified its audit and investigation efforts related to the ERC. The agency trained additional personnel to conduct examinations, focusing on eligibility, qualified wage calculation, and validity of governmental orders. This heightened enforcement activity underscores the IRS’s commitment to ensuring the tax system integrity and recovering improperly claimed funds.