The Employee Retention Credit is a federal tax refund for businesses that kept workers on payroll during pandemic shutdowns

The Employee Retention Credit (ERC) is a refund from the IRS for businesses that continued paying employees during 2020 and 2021, when government orders forced closures or reduced operations. It is not a loan — it is money the government returns to you because you met specific conditions during the pandemic.

The credit covers a portion of the wages you paid to employees during quarters when your business was either shut down by government order or experienced a significant drop in revenue. You do not have to repay it, and you can claim it even if you also received a Paycheck Protection Program (PPP) loan — though there are rules about which wages you count for each program.

The IRS began accepting ERC claims in 2021, but many businesses did not know about the program or did not realize they were may be able to access. This created a backlog that continues today, with the IRS processing claims filed years after the pandemic ended.

Key Takeaways

  • The ERC refund covers wages paid during 2020 and 2021 when your business was shut down by government order or lost more than half its revenue.
  • You can claim up to $5,000 per employee for 2020 and up to $5,000 per employee for 2021, for a maximum of $10,000 per worker across both years.
  • If you received a PPP loan, you cannot count the same wages for both the PPP forgiveness and the ERC — you must choose which program covers each wage amount.
  • You file an ERC claim on your business tax return (Form 941-X for prior quarters) or through the IRS's amended return process, not through a separate process.
  • Processing times vary widely; some claims are approved within months while others take years, and the IRS has a backlog of hundreds of thousands of claims.

Who can claim the Employee Retention Credit

You can claim the ERC if your business was operating in 2020 or 2021 and you meet one of two conditions: either your business was fully or partially shut down by government order, or your gross revenue dropped by more than 50 percent compared to the same quarter in the prior year.

The shutdown condition is straightforward — if a government order forced you to close or severely limit operations, you likely may have access to for those quarters. The revenue test is more common for businesses that stayed open but saw dramatic drops in sales. You compare your revenue quarter by quarter; if Q2 2020 brought in less than half what Q2 2019 brought in, you may have access to for Q2 2020.

Self-employed people and sole proprietors can claim the ERC on wages they paid themselves, though the calculation is different from what a business with employees uses. Nonprofits, government agencies, and certain other entities are excluded.

How much money you can receive

The maximum ERC refund is $5,000 per employee for 2020 and $5,000 per employee for 2021, totaling $10,000 per worker if you may have access to for both years. The amount you actually receive depends on how many employees you had and how much you paid them during the may have access to quarters.

The credit is calculated as a percentage of wages paid. For 2020, it covers 50 percent of wages up to $10,000 per employee per quarter (so up to $5,000 per employee for the year). For 2021, it covers 70 percent of wages up to $10,000 per employee per quarter (so up to $7,000 per employee for the year, but capped at $5,000 total per employee across all of 2021).

If you have 50 employees and paid each of them $20,000 in may have access to wages during 2020, your ERC would be 50 employees × $5,000 = $250,000. The actual number depends on your payroll records and which quarters you may have access to for.

The PPP and ERC overlap issue

Many businesses received both a PPP loan and are now claiming the ERC. The IRS rule is that you cannot use the same wages to reduce your taxes twice. If wages were forgiven under the PPP, you cannot also claim them for the ERC.

In practice, this means you need to separate your payroll into two groups: wages covered by PPP forgiveness and wages you will claim for the ERC. You cannot claim the same $10,000 in employee wages for both programs. If your PPP covered all your payroll for a quarter, you have no wages left to claim for the ERC in that quarter.

This is one reason many ERC claims are delayed or rejected — the IRS cross-checks PPP records to may support no double-dipping. If your claim shows wages that were also forgiven under PPP, the IRS will either reduce your ERC or request documentation showing which wages belong to which program.

How to file an ERC claim

You file the ERC claim by amending your business tax return for the quarters you are claiming. For most businesses, this means filing Form 941-X (Adjusted Employer's Quarterly Federal Tax Return) for each quarter you may have access to for. You cannot file a single claim covering multiple years — you file one form per quarter.

The form asks for basic business information, the number of employees, the wages paid, and which condition you are claiming (shutdown or revenue loss). You attach documentation showing you meet the condition — government shutdown orders, revenue records, or both.

Some businesses work with accountants or tax professionals to file the claim, while others file directly with the IRS. There is no separate process portal; the claim goes through the standard tax return amendment process. Once filed, you wait for the IRS to process it, which can take anywhere from a few months to several years depending on the current backlog.

What happens after you file

After you file Form 941-X, the IRS sends you a notice acknowledging receipt. This does not mean your claim is approved — it means they have it. The IRS then reviews the claim to verify you meet the conditions and that the wages and amounts are correct.

If the IRS approves your claim, they issue a refund check or explore the credit to other taxes you owe. If they have questions, they send you a letter asking for more documentation — usually proof of the shutdown order or revenue records. You have a set time to respond, typically 30 days.

If the IRS denies your claim, they send a notice explaining why. Common reasons include not meeting the shutdown or revenue test, claiming wages that were covered by PPP, or not having adequate documentation. You can appeal a denial or file an amended claim if you believe the IRS made an error.

Common reasons claims are delayed or denied

The IRS is processing ERC claims in the order they were received, but the backlog is substantial. Claims filed in 2021 may not be processed until 2024 or later. Additionally, the IRS has flagged certain claims for extra review, particularly those filed by tax professionals or those claiming very large amounts.

Claims are often denied or delayed because of PPP overlap issues — the IRS finds that some wages were already forgiven under PPP and removes them from the ERC claim. Other common problems include missing or unclear documentation of the shutdown order, revenue records that do not clearly show a 50 percent drop, or wage calculations that do not match payroll records.

If your claim has been pending for more than a year with no response, you can contact the IRS directly or work with a representative to check the status. The IRS has a dedicated ERC phone line, though wait times are long.

Frequently Asked Questions

Can I claim the ERC if I already got a PPP loan forgiven?

Yes, but only for wages not covered by the PPP forgiveness. You must separate your payroll into PPP-covered wages and non-PPP wages, then claim the ERC only on the non-PPP portion. If the PPP covered all your payroll for a quarter, you cannot claim the ERC for that quarter.

Do I need a government shutdown order to claim the ERC?

No. You can claim based on the revenue test instead — if your gross revenue dropped by more than 50 percent in a quarter compared to the same quarter the prior year, you may have access to even without a shutdown order. Many businesses use the revenue test because it is easier to document with financial records.

How long does it take to get the ERC refund?

Processing times vary widely. Some claims are approved within six months, while others take two to three years or longer. The IRS has a large backlog, and claims are processed in the order received. You can check the status by contacting the IRS or working with a tax professional.

What documents do I need to file an ERC claim?

You need payroll records showing wages paid to employees, proof of the shutdown order (if claiming under the shutdown condition) or revenue records (if claiming under the revenue test), and your business tax returns for the years you are claiming. The IRS may request additional documentation after you file.

Can I claim the ERC for 2022 or later?

No. The ERC program only covers wages paid in 2020 and 2021. If your business was affected by pandemic conditions in 2022 or later, you would need to look at other relief programs, though most pandemic-specific programs ended in 2021 or 2022.