Employee Retention Credit: What It Is and How Your Business Can Still Claim It
- DM Monticello
- Jun 25
- 7 min read
The Employee Retention Credit (ERC) was one of the most impactful relief measures created during the COVID-19 pandemic. Designed to support businesses that kept employees on payroll during economic uncertainty, the ERC provides refundable tax credits worth thousands of dollars per employee.
Even though the pandemic-era programs have ended, many eligible businesses can still claim the credit retroactively—and potentially receive large IRS refunds in 2025.
If your business was impacted in 2020 or 2021, this guide will help you:
Understand how the ERC works
Determine if you're eligible
Calculate how much you can claim
Learn how to apply before the deadline
What Is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a refundable payroll tax credit created under the CARES Act of 2020. It was later expanded by the Consolidated Appropriations Act and the American Rescue Plan Act.
How the Credit Was Introduced During COVID-19
The ERC was introduced to encourage employers to retain staff—even while business operations were partially or fully disrupted due to COVID-19. Unlike a loan, the ERC is:
Non-repayable
Filed through IRS forms
Issued as a cash refund if the credit exceeds taxes owed
Originally, it ran through Q4 of 2021, but the IRS still allows retroactive claims for qualifying quarters.
IRS Guidance on Eligibility and Deadlines
The IRS allows eligible businesses to claim the ERC retroactively by filing an amended payroll tax return (Form 941-X). You may still apply for:
2020 ERC credits (deadline: April 15, 2024)
2021 ERC credits (deadline: April 15, 2025)
That means 2025 is your last chance to secure thousands in credits for 2021 payrolls—if you haven’t filed yet.
How ERC Supports Payroll Retention
The credit was created to reimburse businesses for keeping employees on payroll—even when revenue declined or operations were restricted. It helped offset:
Payroll taxes
Wages and healthcare benefits
Employee-related expenses
Businesses that qualify can receive up to $26,000 per employee across 2020 and 2021.
Who Qualifies for the Employee Retention Credit?
Not every business is eligible—but the rules are broader than many realize. You may qualify if you meet any of the following tests.
1. Revenue Decline Test
For 2020:
A business must show a 50% decline in gross receipts in any calendar quarter compared to the same quarter in 2019.
For 2021:
The threshold was reduced to a 20% decline, making it easier to qualify.
This is the most common test and applies to many industries—especially retail, hospitality, and professional services.
2. Partial Suspension of Operations
Even if revenue didn’t drop, your business may still qualify if:
You experienced full or partial shutdowns due to government orders (e.g., capacity limits, mandated closures, or social distancing requirements).
Your supply chain was disrupted, preventing normal business operations.
Many professional offices, construction firms, and healthcare clinics qualify under this category.
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3. You Received PPP Loans? You May Still Qualify
Originally, ERC wasn’t available to businesses that took Paycheck Protection Program (PPP) loans—but that rule changed in 2021.
Now:
Businesses can claim both PPP and ERC, just not for the same wages during the same time period.
Careful allocation is needed, but you don’t lose eligibility.
This makes ERC viable for thousands of small businesses that previously dismissed it.
How Much Can Your Business Claim Through ERC?
The amount your business can claim depends on:
The year (2020 vs. 2021)
The number of full-time W-2 employees
Your average wages paid during qualifying quarters
ERC Limits in 2020 vs. 2021
For 2020:
Credit of 50% of up to $10,000 in wages per employee for the entire year
Max of $5,000 per employee
For 2021:
Credit of 70% of up to $10,000 in wages per employee per quarter
Max of $7,000 per employee, per quarter (Q1 to Q3)
Total possible refund: $21,000 per employee
Combined with 2020, the maximum potential refund is $26,000 per employee
Refunds vs. Tax Reductions
The ERC is a refundable tax credit, meaning:
If your credit exceeds your payroll taxes owed, the IRS sends you a check for the difference
This is different from a tax deduction or loan forgiveness
Many small businesses have received 5- and 6-figure refunds through ERC filings.
How to Apply for the Employee Retention Credit
If your business qualifies for ERC, don’t delay—time is running out to file retroactively. Here’s how the process works:
Use IRS Form 941-X to File
Because the ERC was claimed through payroll tax filings, you’ll need to amend previously submitted IRS Form 941 using Form 941-X.
Steps:
Identify the quarters you qualify for in 2020 and 2021.
Gather payroll records and documentation to support eligibility.
Work with a CPA or tax preparer (recommended) to complete the 941-X.
Mail it to the IRS—electronic filing isn’t available for this form.
Documentation Required
To reduce the risk of IRS audit or delay, keep these on file:
Gross receipts reports (2020–2021)
Proof of government shutdown orders (for partial suspension)
Employee wage data (including health benefits)
PPP loan forgiveness documentation (if applicable)
Tip: The IRS may request this during a future review, so be organized.
How Long Does It Take to Receive the Refund?
As of 2025, the IRS backlog for ERC refunds varies:
Typical wait time: 4–8 months
Complex cases may take longer (especially with PPP overlaps)
Refunds are paid by check and sent by mail
While the delay may seem long, many businesses receive 5–6 figure checks—so it’s worth the wait.
Related: How to Hire Remote Workers
Common Mistakes When Claiming ERC
The IRS has increased enforcement for improper ERC claims. Avoid these frequent errors to ensure your refund is accurate—and safe.
Overstating Qualified Wages
Not all wages are eligible for ERC. Avoid double-dipping:
Don’t claim wages covered by PPP forgiveness
Don’t include owner compensation (if over 50% ownership)
Exclude wages used for other credits (e.g., FFCRA, R&D)
Claiming Without Meeting the Eligibility Tests
Only use:
The revenue decline test
The government order test
Or both—but with supporting documentation
If you can’t prove disruption, you risk having to repay the credit with penalties.
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Missing Filing Deadlines
Key IRS ERC deadlines:
2020 claims: Must be filed by April 15, 2024 (deadline has passed)
2021 claims: Deadline is April 15, 2025
That means you can still file for Q1–Q3 of 2021, but this is your final year to do so.
Related: How to Manage a Remote Workforce Across Time Zones
How OpsArmy Supports Businesses with Hiring and Retention
While the ERC provided relief for past payroll expenses, today’s small businesses still face hiring and retention challenges. That’s where OpsArmy comes in.
What Is OpsArmy?
OpsArmy helps growing companies build reliable remote teams for:
Admin support
Customer service
Project coordination
Operations and marketing assistance
By matching companies with pre-vetted virtual assistants, OpsArmy helps reduce:
Turnover
Burnout
Payroll costs
Administrative overload
Explore: The Power of a Virtual Talent Team
Why It Matters After ERC
ERC helped you keep staff during hard times. OpsArmy helps you:
Rebuild and scale post-pandemic
Avoid costly hiring cycles
Support full-time employees with remote admin help
Prevent burnout by delegating routine work
If your team is struggling with staffing gaps or retention, hiring through OpsArmy is faster, leaner, and more flexible than traditional hiring.
Why the Employee Retention Credit Still Matters in 2025
Although the height of the pandemic is behind us, the employee retention credit remains one of the most valuable (and underutilized) federal programs for small businesses. Even if your company has stabilized or grown since 2021, claiming the ERC retroactively can:
Improve your cash flow
Reduce your long-term tax burden
Fund future growth initiatives like hiring, marketing, or equipment
Many eligible businesses have already left this money unclaimed. According to IRS reports, billions of dollars in ERC funds remain available. That’s why it's essential for businesses that retained employees in 2020 and 2021 to recheck their eligibility, especially if:
You initially thought PPP disqualified you
Your CPA didn’t inform you of the ERC
You had operational disruptions even without revenue loss
The good news? You still have time for 2021 claims—but April 15, 2025, is your final deadline. After that, the door closes permanently.
Still Confused About the Employee Retention Credit? Here’s What to Do Next
If you're unsure whether your business qualifies for the employee retention credit, now is the time to act. Many business owners assume they're ineligible due to PPP loans or a lack of revenue loss—yet thousands of companies are successfully filing today based on operational disruptions or supply chain challenges.
Check your 2020 and 2021 payroll records
Speak with a qualified tax professional or CPA
Use trusted documentation to support your claim
File Form 941-X before the April 2025 deadline
And remember: this is not a loan. The ERC is a refundable payroll tax credit—if you're owed money, the IRS sends you a check. Don’t leave your share unclaimed.
Frequently Asked Questions
Can I still claim the Employee Retention Credit in 2025?
Yes—for wages paid in Q1, Q2, or Q3 of 2021. You must file by April 15, 2025, using IRS Form 941-X.
Is the Employee Retention Credit taxable income?
No, but it reduces your payroll deduction on your business tax return, which can increase taxable income. Consult a CPA for accurate reporting.
Can sole proprietors or contractors claim ERC?
No. Only businesses that paid W-2 employees (not 1099 contractors) are eligible.
Related: What Do Virtual Assistants Do?
Conclusion
The Employee Retention Credit offers a valuable refund opportunity for businesses impacted by COVID-19 in 2020 and 2021. If you had payroll employees and experienced a revenue drop or government restrictions, you may be eligible for up to $26,000 per employee—but time is running out.
Filing can take time and documentation, but it’s worth the effort. And once your ERC refund arrives, reinvest it into long-term growth by hiring smarter.
Use OpsArmy to build a remote-ready team that supports your business year-round—without burnout, turnover, or full-time overhead.
About OpsArmy
OpsArmy is a hiring platform that helps small businesses grow with vetted, remote talent in admin, operations, customer service, and support. Our virtual assistants help your team scale efficiently—so you can focus on strategy, not staffing.
Sources
IRS Employee Retention Credit – https://www.irs.gov/coronavirus/employee-retention-credit
U.S. Chamber of Commerce – https://www.uschamber.com
Journal of Accountancy – https://www.journalofaccountancy.com
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