The Employee Retention Credit is a federal tax refund for businesses that kept workers on payroll during COVID-19 shutdowns

The Employee Retention Credit (ERC) is a refundable tax credit created by the federal government to help businesses cover payroll costs when they were forced to close or operate at reduced capacity during the pandemic. Unlike a typical tax deduction, a refundable credit can result in a refund check even if your business owes no taxes. The IRS treats an ERC refund the same way it treats an overpayment on your tax return—it either reduces what you owe or gets sent back to you as a payment.

The credit was available to businesses of any size, including nonprofits and tax-exempt organizations. The amount you could claim depended on how many employees you had, how long operations were disrupted, and which quarters of 2020 and 2021 you may have access to for. Businesses could claim up to $5,000 per employee for 2020 and up to $5,000 per employee for each quarter of 2021, for a maximum of $26,000 per employee across both years.

Key Takeaways

  • The ERC is a refundable tax credit that can result in a refund check, not just a reduction in taxes owed.
  • You claim the ERC by filing an amended payroll tax return (Form 941-X) with the IRS, not through a separate application.
  • The IRS has been processing ERC claims since 2021, but backlogs mean refunds can take anywhere from several months to over a year.
  • You cannot claim the ERC for the same wages you used to claim the Paycheck Protection Program (PPP) loan forgiveness.
  • The deadline to claim the ERC was December 31, 2023, so no new claims can be filed after that date.

How the ERC refund process works

To claim an ERC refund, you file an amended Form 941-X (Adjusted Employer's Quarterly Federal Tax Return for Wages Paid to Employees) with the IRS for each quarter you believe you may have access to. This form tells the IRS you are claiming a credit against the payroll taxes you paid during that quarter. If the credit is larger than the taxes you owed that quarter, the difference becomes a refund.

You can file the amended return yourself or work with a tax professional or accountant. Many accounting firms and payroll companies now offer ERC filing services because the rules are complex and the potential refund is significant. The IRS does not have a separate portal or application for the ERC—it all goes through the standard tax return filing system.

Once you file, the IRS enters your claim into a processing queue. The agency has been working through a large backlog of ERC claims filed since 2021. Processing times have improved but still vary widely depending on the complexity of your claim and current IRS workload.

Timeline for receiving your ERC refund

There is no fixed timeline for an ERC refund. The IRS has stated that most claims are processed within 120 days of filing, but many take longer. Some businesses have received refunds within a few months, while others have waited over a year. The variation depends on whether your claim is straightforward or requires additional review.

Simple claims—those with clear documentation and no red flags—tend to process faster. Complex claims, such as those involving multiple business locations, significant wage calculations, or businesses that also received PPP loans, may trigger additional scrutiny and take much longer.

You can check the status of your ERC claim using the IRS's online tool at irs.gov under "Where's My Refund?" or by calling the IRS at 1-800-829-1040. Have your EIN (Employer Identification Number) and the date you filed the amended return ready when you check.

Who can claim the ERC and what disqualifies you

You can claim the ERC if your business was in operation during 2020 or 2021 and you meet one of two conditions: either government orders forced you to close or suspend operations, or you experienced a significant decline in revenue compared to the same quarter in the prior year. A significant decline is generally defined as a 20 percent drop in gross receipts for 2020 or a 20 percent drop for any quarter in 2021.

The most common disqualifier is having claimed the same wages for PPP loan forgiveness. The IRS does not allow you to use the same employee wages to claim both credits. If you received a PPP loan and had it forgiven, you must exclude those wages from your ERC claim. Some businesses have had to amend their ERC claims or repay refunds when the IRS discovered this overlap.

Businesses that received other federal relief funds, such as shuttered venue grants or restaurant revitalization funds, can still claim the ERC for wages not covered by those programs. The key rule is that you cannot use the same wages twice across different programs.

What to expect after you file your claim

After you file Form 941-X, the IRS will send you a notice acknowledging receipt of your amended return. This notice does not mean your claim has been approved—it simply confirms the IRS received it. You should keep this notice for your records.

If the IRS needs more information, they will send you a letter requesting specific documents, such as payroll records, proof of government orders, or revenue documentation. You will have a deadline to respond, usually 30 days. Responding promptly and completely reduces the chance of delays or denial.

If your claim is approved, the IRS will issue a refund check or deposit the funds directly to your business bank account if you provided banking information on your return. The refund will be sent to the address listed on your Form 941-X unless you requested direct deposit.

Common reasons ERC claims are delayed or denied

The most frequent reason for delay is incomplete documentation. The IRS may request payroll records, government closure orders, or financial statements to verify your claim. Businesses that do not respond to these requests within the deadline face denial or significant delays.

Claims are also delayed when there are discrepancies between the wages reported on the ERC claim and the wages reported on other tax documents. For example, if your Form 941-X shows different wage amounts than your Form 1040 or corporate tax return, the IRS will flag this for review.

Outright denials typically occur when a business cannot prove it meets the may be able to access criteria—for instance, if there is no evidence of a government order or a revenue decline, or if the same wages were used for both PPP forgiveness and the ERC claim. Some businesses have also been denied because they did not actually suspend operations or reduce capacity during the claimed quarters.

Working with a tax professional on your ERC claim

Because ERC rules are detailed and the potential refund is large, many businesses work with a CPA, tax attorney, or enrolled agent to file their claim. These professionals can review your payroll records, determine which quarters you may have access to for, calculate the correct credit amount, and handle IRS correspondence if questions arise.

If you hire someone to file your ERC claim, make sure they are a licensed tax professional. The IRS has warned against unscrupulous promoters who may provide refunds or charge contingency fees based on the refund amount. Legitimate tax professionals will charge a flat fee or hourly rate and will not promise a specific outcome.

You can also file the claim yourself if you have detailed payroll records and feel confident in your interpretation of the rules. The IRS website has information about the ERC, and the Form 941-X instructions walk through the calculation process, though they are technical and assume some tax knowledge.

Frequently Asked Questions

Can I claim the ERC if I already received a PPP loan?

Yes, but only for wages not covered by the PPP loan forgiveness. If you used certain wages to get PPP forgiveness, you cannot claim the ERC for those same wages. You must exclude PPP-covered wages from your ERC calculation. Many businesses have had to amend their claims when they initially overlooked this rule.

What happens if the IRS denies my ERC claim?

You can appeal the denial or file a claim in the U.S. Court of Federal Claims. The appeal process involves responding to the IRS's reason for denial with additional documentation or a written explanation. If you disagree with the appeal outcome, you have the right to pursue litigation, though this is expensive and should be done with a tax attorney.

How long does it take to get an ERC refund after approval?

Once approved, the IRS typically issues the refund within 30 days. If you requested direct deposit, the funds usually arrive within one to two weeks. If the refund is mailed as a check, allow an additional week or two for postal delivery depending on your location.

Do I need to report the ERC refund as income on my next tax return?

No. The ERC is a tax credit, not taxable income. However, if you deducted the same wages as a business expense on your tax return, you may need to adjust that deduction. Consult a tax professional to ensure you handle this correctly, as the rules vary by situation.

Can I still file an ERC claim if I missed the deadline?

No. The deadline to file an ERC claim was December 31, 2023. The IRS is no longer accepting new ERC claims after that date. If you did not file by the deadline, you cannot claim the credit.