How to Claim Employee Retention Credits in 2025
- DM Monticello
- 3 days ago
- 7 min read
If your business retained employees during the pandemic, you could still be eligible to claim thousands of dollars in employee retention credits (ERCs)—but time is running out. The IRS still allows retroactive filings for this powerful payroll tax refund program through 2025.
The ERC was designed to reward employers who kept workers on payroll during COVID-19 disruptions. If you didn’t claim your credits yet, you may be leaving significant money on the table—up to $26,000 per employee.
In this guide, we’ll explain:
What employee retention credits are
Who qualifies
How much you could claim
How to file before the April 2025 deadline
What Are Employee Retention Credits?
The Employee Retention Credit (ERC) is a refundable tax credit introduced in March 2020 as part of the CARES Act, later expanded through additional stimulus packages.
Origin of the ERC Under the CARES Act
The U.S. government created ERCs to help businesses weather the COVID-19 crisis by:
Offsetting payroll tax costs
Encouraging companies to keep employees on payroll
Preventing mass layoffs and workforce reductions
Unlike the Paycheck Protection Program (PPP), which offered forgivable loans, ERCs are tax credits. That means if you qualify, the IRS sends you a cash refund for part of the wages you paid in 2020 and 2021.
How ERC Evolved Through 2021
At first, the ERC was limited in scope:
Only available to businesses that did not receive PPP loans
Capped at $5,000 per employee total in 2020
However, changes in late 2020 and early 2021 allowed:
PPP recipients to claim ERC (with wage coordination rules)
Higher credit rates for wages paid in 2021
Credits of up to $7,000 per employee per quarter in 2021
By 2021, employers could claim up to $21,000 per employee, in addition to 2020’s $5,000—bringing the total potential refund to $26,000 per employee.
Credits vs. Loans vs. Deductions
Let’s clarify the difference:
Credits reduce taxes dollar-for-dollar and can generate refunds
Loans (like PPP) must be repaid unless forgiven
Deductions lower taxable income but don’t provide direct cash
Employee retention credits are refundable credits, which means if your credit exceeds payroll tax liability, you receive the difference in cash.
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Who Can Still Qualify for Employee Retention Credits in 2025?
You can still apply for ERC if your business:
Had full-time W-2 employees during 2020 or 2021
Paid wages during qualifying quarters
Meets at least one of the IRS’s eligibility tests
Eligibility Based on Revenue Loss
You qualify if your gross receipts dropped significantly compared to the same quarter in 2019:
In 2020, a 50% or more decline in a quarter
In 2021, only a 20% drop was required
This test applies to all types of businesses—including restaurants, retail, clinics, and professional services.
Operational Disruption Due to COVID-19
Even if you didn’t lose revenue, you may qualify if your business:
Was partially or fully shut down due to government orders
Experienced a significant supply chain interruption
Had to reduce hours or modify operations
Examples:
A restaurant required to close indoor dining
A dental office unable to operate due to PPE shortages
A manufacturer that lost access to key supplies
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PPP Loan Recipients and Updated ERC Rules
Originally, businesses that accepted PPP loans were ineligible for ERC. However, updates made in 2021 now allow you to claim both, as long as:
You don’t use the same wages for both PPP forgiveness and ERC
You can support wage documentation for each program separately
Thousands of businesses mistakenly skipped ERC, assuming PPP made them ineligible—don’t let that happen to you.
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How Much Are Employee Retention Credits Worth?
The credit amounts depend on the year and your payroll totals.
Credit Breakdown Per Employee
For 2020:
50% of up to $10,000 in wages per employee
Max $5,000 per employee for the year
For 2021:
70% of up to $10,000 in wages per quarter
Max $7,000 per quarter for Q1, Q2, and Q3 (Q4 excluded)
Max $21,000 per employee
Total possible refund per employee = $26,000
How to Calculate Your Total Refund
Use your:
Quarterly gross receipts reports
Payroll records showing wages and healthcare contributions
Employee count during 2020 and 2021
If you had 10 employees and qualify for all eligible quarters, your potential refund could be:
10 employees × $26,000 = $260,000
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Factors That Reduce or Increase Your Credit Amount
Adjustments are made for:
Owner or family-member wages (often excluded)
Coordination with PPP forgiveness
Use of other credits (e.g., sick leave credits, R&D credits)
A qualified CPA or ERC consultant can help ensure you don’t overstate or underclaim.
Step-by-Step Guide to Claiming ERC Today
If your business qualifies for employee retention credits, the next step is to file a retroactive claim with the IRS. The sooner you act, the sooner your refund arrives.
Use IRS Form 941-X
To amend a previously filed payroll tax return, you must use IRS Form 941-X, which corrects your original Form 941 for a specific quarter.
Steps:
Identify each eligible quarter in 2020 or 2021.
Use Form 941-X to claim ERC for that quarter.
Mail the form to the IRS (it cannot be submitted electronically).
Wait for processing and check delivery.
Each quarter requires its own form. For example, if you're claiming Q2 and Q3 of 2021, you'll file two separate 941-X forms.
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What Documents Do You Need to Support Your Claim?
You don’t file supporting documents with your 941-X, but you must maintain accurate records in case of an audit.
Include:
Gross receipts reports (2019–2021)
Government orders affecting operations (if using shutdown test)
Payroll records for qualifying employees
Proof of PPP forgiveness (if applicable)
Any relevant correspondence from the IRS
Having this documentation on hand ensures compliance and speeds up processing if additional review is required.
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How Long Does It Take to Receive Your Refund?
As of 2025, IRS processing times for ERC refunds are slower than usual due to high demand and fraud screenings.
Typical timelines:
4–8 months from the date of mailing
Longer if additional documentation is requested
Many businesses have received $50,000 to $500,000+ in refundable credits. The wait is well worth it.
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Avoid These ERC Filing Mistakes
Because ERC refunds are substantial, they’re subject to high scrutiny. Avoid these common pitfalls to ensure your claim goes through smoothly.
Errors in Wage Calculations
Double-check:
Qualified wages
Exclusions for family members and owners
Separation of PPP-covered wages
Mistakes in these areas can result in reduced refunds or audits.
Filing for Ineligible Employees or Quarters
You must meet the revenue drop or government shutdown test for each quarter you’re claiming.
Tip: Even if you only qualify for one quarter, it can still add up to thousands in credits.
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Missing the April 2025 Deadline
There’s no grace period. You must submit:
2021 claims by April 15, 2025
(2020 claims were due by April 15, 2024, and are now closed.)
Don't wait until Q1 2025—processing and delivery times mean the sooner you file, the better.
How OpsArmy Supports Businesses with Post-ERC Retention
Once you receive your ERC refund, the next step is using it wisely. Many business owners reinvest that money into team growth and retention—and OpsArmy helps you do just that.
Back-Office Staffing with Remote Talent
OpsArmy connects businesses with vetted virtual assistants who can:
Manage admin tasks
Handle customer service
Support operations
Assist with scheduling, billing, and more
Instead of overworking full-time staff or rushing new hires, use OpsArmy to scale efficiently and flexibly.
Explore: The Power of a Virtual Talent Team
Build Long-Term Stability After ERC
ERC helped your business during the pandemic—but building a resilient workforce takes more than a one-time credit.
With OpsArmy, you get:
Reduced burnout among your core team
Less turnover through smarter delegation
Scalable support during busy seasons
Reliable coverage without full-time payroll expenses
Your ERC refund can do more than pay the bills—it can transform your team structure for long-term success.
Frequently Asked Questions
Are employee retention credits taxable?
No, but they reduce payroll tax expenses, which may affect deductions on your business return. Consult your CPA.
Can I still apply for 2020 credits?
No. The deadline to file for 2020 was April 15, 2024. You can still file for 2021 credits until April 15, 2025.
Can sole proprietors claim ERC?
Only if they have W-2 employees. Sole proprietors and 1099 contractors without W-2 staff are not eligible.
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Conclusion
Employee retention credits are one of the most impactful business tax relief programs in U.S. history. If you paid employees during COVID-19 and meet the eligibility rules, you could still recover thousands—but only until April 15, 2025.
Don’t leave that money on the table. File your claims, organize your documentation, and make a plan to reinvest in your team.
If your business weathered the storm of 2020 and 2021, employee retention credits are your opportunity to recover and reinvest. These funds aren’t just tax breaks—they’re real, refundable dollars that can help you:
Expand your team
Automate repetitive work
Invest in retention and operational stability
The deadline for 2021 credits is fast approaching, and once it's gone, there’s no second chance. Don’t wait. Work with your CPA, prepare your documents, and file now.
And when you're ready to turn that refund into long-term growth, OpsArmy is here to help. We’ll match you with experienced virtual talent who support your team without adding stress to your payroll.
OpsArmy is here to help you build a stronger, more resilient workforce.
About OpsArmy
OpsArmy is a remote staffing platform that helps growing businesses hire high-quality virtual assistants for operations, admin, and support roles. We help reduce overhead, support full-time teams, and increase retention by making work more manageable.
Sources
IRS – https://www.irs.gov/coronavirus/employee-retention-credit
U.S. Chamber of Commerce – https://www.uschamber.com
SBA – https://www.sba.gov
Journal of Accountancy – https://www.journalofaccountancy.com
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