Employee Retention Credit (ERC) | Tax Attorneys in Roseville, CA

What Was the Employee Retention Credit?

The Employee Retention Credit (ERC) was a refundable federal payroll tax credit created by the CARES Act and expanded by subsequent legislation. The credit was designed to encourage businesses to retain employees during the COVID-19 pandemic by offsetting the cost of wages paid during periods of operational disruption or significant revenue decline.

For qualifying businesses, the ERC could be a substantial credit — up to $5,000 per employee in 2020 and up to $21,000 per employee across the three eligible quarters in 2021.

ERC Eligibility Requirements

To qualify for the ERC, a business had to meet one of two criteria in each eligible quarter: (1) a full or partial suspension of operations due to a governmental order related to COVID-19 that limited commerce, travel, or group meetings, or (2) a significant decline in gross receipts compared to the corresponding quarter in 2019 (50% decline for 2020, 20% decline for 2021).

Recovery Startup Businesses — those that began operations after February 15, 2020 and had annual gross receipts under $1 million — had their own eligibility rules for Q3 and Q4 2021.

Claiming the ERC on Amended Returns

Businesses that were eligible for the ERC but did not claim it could file amended payroll tax returns (Form 941-X) to claim the credit retroactively. Given the statute of limitations for refund claims, the window to file amended returns for earlier quarters has been closing. Our attorneys help eligible businesses evaluate their qualification and, where appropriate, prepare and file amended returns.

Note: Due to the IRS moratorium and compliance initiatives, all ERC claims should be carefully evaluated for accuracy and documentation before submission.

ERC and Other COVID-19 Relief Coordination

Wages used to support PPP loan forgiveness cannot also be counted as qualified wages for ERC purposes. Businesses that received PPP loans and ERC credits must carefully coordinate these programs to avoid double-dipping claims that could trigger IRS assessments.