When Does the Employee Retention Credit End?
Unpack the Employee Retention Credit's complete lifecycle: program end, unique eligibility, retroactive claims, and IRS examination details.
The Employee Retention Credit (ERC) provided financial relief to businesses that paid employees during economic disruptions caused by the COVID-19 pandemic. This refundable payroll tax credit incentivized employers to retain their workforce, offsetting qualified wages and health plan expenses. Understanding the legislative changes that impacted the ERC’s duration is important for businesses that claimed the credit or are considering retroactive claims.
Original and Revised Program End Dates
The Employee Retention Credit originated with the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Initially, this legislation made the credit available for qualified wages paid after March 12, 2020, and before January 1, 2021. The purpose was to help employers facing economic hardship due to government orders or significant declines in gross receipts keep their employees on payroll.
Subsequently, the Consolidated Appropriations Act, 2021, enacted in December 2020, extended the ERC’s availability. This act broadened eligibility criteria and extended the credit through June 30, 2021. Further legislative action, including the American Rescue Plan Act of 2021, extended the credit period to cover wages paid through December 31, 2021.
However, the Infrastructure Investment and Jobs Act (IIJA), signed into law on November 15, 2021, retroactively terminated the ERC for most employers. This change meant that, for the majority of businesses, the credit applied only to wages paid through September 30, 2021, effectively ending the program three months earlier than anticipated.
Specific Eligibility Windows
While the general end date for the Employee Retention Credit was September 30, 2021, an exception existed for certain businesses. Employers qualifying as a “recovery startup business” remained eligible to claim the ERC through the fourth quarter of 2021.
To be classified as a recovery startup business for ERC purposes, a company must have begun carrying on a trade or business after February 15, 2020. Additionally, the business’s average annual gross receipts for the three tax years preceding the quarter for which the credit is determined must not exceed $1 million. A recovery startup business cannot be otherwise eligible for the ERC based on a full or partial suspension of operations or a significant decline in gross receipts.
The maximum credit available to a recovery startup business was capped at $50,000 per calendar quarter. The specific criteria for recovery startup businesses allowed them to access the credit during a period when most other employers no longer qualified.
Claiming the Credit for Prior Periods
Even though the Employee Retention Credit’s eligibility periods have concluded, businesses that met the criteria for past quarters can still claim the credit. The process involves filing an amended employment tax return, Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. This form allows employers to correct errors or make claims for overreported taxes, including retroactive ERC claims.
The statute of limitations for amending employment tax returns is three years from the date the original Form 941 was filed, or two years from the date the tax was paid, whichever is later. For ERC claims related to 2020, the deadline to file Form 941-X was April 15, 2024. For qualified wages paid in 2021, the deadline for filing amended returns is April 15, 2025.
When completing Form 941-X, businesses must provide information to substantiate their claim. This includes detailing the corrected qualified wages paid to employees and any qualified health plan expenses. The form requires the employer identification number, business name, and the specific quarter being corrected. The refundable portion of the ERC must be indicated on the designated lines of the form.
IRS Review and Examination Periods
Even after an Employee Retention Credit claim has been filed, the Internal Revenue Service (IRS) retains the authority to review and audit these claims. The IRS’s ability to assess additional tax related to ERC claims extends for five years from the date the original Form 941, or the amended Form 941-X, was filed.
Businesses whose ERC claims are selected for review should be prepared to provide comprehensive documentation. This includes payroll records, evidence of a full or partial suspension of operations due to government orders, or detailed gross receipts data demonstrating a significant decline. The IRS seeks to verify that the claimed credit aligns with the eligibility criteria and the amount of qualified wages reported.
Recent legislative changes have further impacted the IRS’s audit timeline for specific periods. For ERC claims related to the third and fourth quarters of 2021, the statute of limitations for IRS assessments has been extended to six years. This means the IRS has additional time to audit these claims, extending to January 31, 2030. Businesses should maintain thorough records for at least five years, and longer for the affected 2021 quarters, to support their ERC claims in the event of an IRS inquiry.