When Does the ERC Tax Credit Expire?

The Employee Retention Credit (ERC) was a refundable tax credit that supported businesses retaining employees during the COVID-19 pandemic. Established under the CARES Act, the ERC encouraged employers to keep workers on payrolls, even with suspended operations or declined gross receipts. This credit provided financial relief by reducing employment tax liabilities for eligible businesses. The program was amended, expanding its scope and modifying its provisions.

Defining the ERC Eligibility Periods

The ERC applied to specific periods when businesses experienced qualifying pandemic impacts. Two primary eligibility periods existed, each with distinct criteria and credit calculations. Understanding these timeframes helps determine eligibility.

The initial ERC period covered wages paid from March 13 to December 31, 2020. Businesses qualified if operations were fully or partially suspended by a governmental order due to COVID-19. Alternatively, eligibility required a gross receipts decline of over 50% in a calendar quarter compared to the same quarter in 2019. The credit was 50% of qualified wages, up to $10,000 per employee annually, for a maximum of $5,000 per employee.

The second eligibility period ran from January 1 to September 30, 2021, for most businesses. The gross receipts decline threshold was over 20% in a quarter compared to the same quarter in 2019 or the preceding quarter in 2020. The credit increased to 70% of qualified wages, capped at $10,000 per employee per quarter, for a maximum of $7,000 per employee quarterly.

Recovery startup businesses could claim the ERC through December 31, 2021, for the third and fourth quarters. To qualify, a business must have begun operations after February 15, 2020, and have average annual gross receipts not exceeding $1 million for the three tax years preceding the claim quarter. They could claim up to $50,000 per quarter, based on 70% of qualified wages. Qualified wages included cash wages, hourly and salaried pay, vacation pay, and certain allocable health plan expenses subject to Social Security and Medicare taxes.

Deadlines for Claiming and Amending the ERC

ERC claim and amendment deadlines are governed by employment tax return statutes of limitations. Businesses use Form 941, Employer’s Quarterly Federal Tax Return, to report employment taxes; adjustments or refund claims are made on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The standard statute of limitations for amending these returns is three years from the original filing date.

For 2020 ERC claims, the Form 941-X filing deadline is April 15, 2024. This is because 2020 quarterly Form 941s are considered filed on April 15, 2021, for statute of limitations purposes. Thus, the three-year amendment window extends to April 15, 2024. This deadline applies to initial claims and amendments.

For 2021 ERC claims, the Form 941-X deadline is April 15, 2025. Similarly, 2021 quarterly Form 941s are considered filed on April 15, 2022, for statute of limitations. This sets the three-year amendment period ending April 15, 2025. The Infrastructure Investment and Jobs Act retroactively ended the ERC for most businesses on September 30, 2021, except for recovery startup businesses, who could claim it through December 31, 2021.

These statutory deadlines are firm; claims filed afterward are likely denied by the IRS. This applies to both original claims and amendments correcting prior filings or seeking additional credit. Adhering to these deadlines is important for businesses seeking the ERC.

Preparing Your ERC Claim or Amendment

Preparing an ERC claim or amendment requires gathering specific financial and operational information. This ensures the claim is substantiated and correctly calculated per IRS guidelines. Businesses must collect documents to support eligibility and the claimed credit amount.

Key information includes payroll records for eligible quarters, detailing qualified wages and employee count. This also includes health plan expenses considered qualified wages. Businesses must compile gross receipts data for relevant quarters, comparing to 2019 figures to show revenue decline. If eligibility is based on suspended operations, documentation of the governmental orders causing suspension is necessary.

For businesses with Paycheck Protection Program (PPP) loans, have PPP loan details, including amount, covered period, and forgiveness documentation. Wages used for PPP loan forgiveness cannot also be claimed for the ERC, preventing a double benefit. Once documentation is assembled, the claim is made on Form 941-X.

Completing Form 941-X involves several steps. Businesses must indicate the adjusted quarter(s) and provide their Employer Identification Number (EIN), name, and address. The form requires entering corrected qualified wages and health plan expenses in Part 2, which feeds into the credit calculation in Part 3. An explanation for the adjustment, such as claiming the ERC, must be provided in Part 3, Line 18. Form 941-X and its instructions are available on the IRS website.

Submitting Your ERC Claim or Amendment

After preparing the ERC claim or amendment, the final step is submission to the IRS. Submission is primarily by mail, as electronic filing for Form 941-X before 2024 generally requires third-party providers.

Businesses mail the completed Form 941-X to the IRS. The mailing address varies by business location or entity type. For example, some states mail to Cincinnati, OH, others to Ogden, UT. Consult official IRS instructions for Form 941-X to confirm the correct mailing address. Using a trackable mail service, like certified mail, is advisable for delivery confirmation.

While payroll records and supporting documentation are essential for preparing the claim, they should not be attached to Form 941-X during submission. Businesses must retain all supporting documentation. This documentation should be available for review if the IRS requests it during processing or an audit.

After submission, processing times for amended employment tax returns vary, often from several months to over a year. Businesses should be prepared for this waiting period. Upon processing, the IRS may issue a refund check, adjustment notice, or an inquiry/audit notice. Maintaining copies of the submitted Form 941-X and supporting documentation is important for future reference and compliance.