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Leveraging the Employee Retention Tax Credit to Support Your Business Recovery

  • Writer: DM Monticello
    DM Monticello
  • Jul 3
  • 7 min read

The past few years have pushed businesses to the edge. From shutdowns and remote transitions to talent shortages, companies have faced it all. Fortunately, one federal program has offered a powerful lifeline: the Employee Retention Tax Credit (ERTC).

Originally introduced under the CARES Act in 2020, the ERTC (also called the ERC) was designed to help employers keep their teams on payroll during hard times. But even as the worst of the pandemic has passed, many businesses still haven’t claimed what they’re owed.

If you had employees on payroll during 2020 or 2021, you may still be eligible to claim up to $26,000 per employee—but time is running out. In this guide, we’ll walk through what the ERTC is, who qualified, how to claim it, and how to use the funds to strengthen your business.



1. What Is the Employee Retention Tax Credit?

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit that was created in 2020 to support businesses during COVID-19. Unlike a loan, it doesn’t need to be repaid. And unlike PPP, it can be claimed retroactively.

Originally, the credit was meant to help employers:

  • Keep employees on payroll despite revenue declines

  • Offset costs from government-mandated shutdowns

  • Avoid layoffs during uncertain times

Both for-profit and nonprofit organizations were eligible—including schools, hospitals, and startups.

Curious how businesses are recovering with lean teams? See how OpsArmy helps automate operations with AI-augmented support.



2. How Much Could You Have Claimed?

The potential value of the credit depends on when you qualified:


2020 Credit Rules

  • 50% of qualified wages, up to $10,000 per employee for the year

  • Max credit: $5,000 per employee


2021 Expanded Credit Rules

  • 70% of qualified wages, up to $10,000 per employee per quarter (Q1–Q3 only)

  • Max credit: $21,000 per employee


Total Potential Credit

A qualified employer could claim up to $26,000 per full-time employee across both years.

If you had 15 employees, that could equal nearly $390,000 in tax credits—funds that can be reinvested into hiring, retention bonuses, training, or outsourcing key support functions.

Need help with workforce planning? Explore our guide to hiring top virtual assistants for an affordable way to scale without stress.



3. Who Was Eligible (and When)?

There are three main ways businesses qualified for the ERTC:


A. Government-Ordered Shutdowns

If your business was partially or fully suspended due to COVID-related government orders, even for a limited time, you may qualify for the affected periods.


B. Significant Revenue Decline

  • 2020: Gross receipts dropped by more than 50% compared to the same quarter in 2019

  • 2021: Gross receipts dropped by more than 20%

Even if your business bounced back quickly, a single qualifying quarter could unlock thousands in credit.


C. Recovery Startup Businesses

If your business launched after February 15, 2020 and had under $1M in revenue, you might qualify as a “recovery startup”—eligible for up to $50,000 in credits per quarter (Q3–Q4 2021 only).

For startups that relied on lean teams or VAs during COVID, this is a powerful way to retroactively fund your growth. Learn how OpsArmy supports startups through virtual talent.


What If You Took a PPP Loan?

Originally, businesses that accepted PPP loans were excluded from the ERTC. But that rule changed in 2021. Now, you can claim both—you just can’t double-count the same wages for forgiveness and credit.

Need help reconciling wages or documents? Our back-office playbook can help you untangle the paperwork.



4. How to Claim the Credit Today

If you haven’t claimed the ERTC yet, you still can—but you must file an amended return.


File Form 941-X

To retroactively claim the credit, you’ll need to:

  • Locate your original IRS Form 941 for the applicable quarter

  • File an amended return (Form 941-X) for each qualifying quarter

  • Include documentation of eligible wages and health benefits

Important: The IRS currently has a large backlog of amended returns, so refunds can take several months to process.

Need support with document review or form filing? OpsArmy’s virtual admin assistants can help organize and track key compliance paperwork.


How Long Does It Take to Receive Funds?

After submitting Form 941-X, employers typically wait 4 to 8 months for the IRS to process the claim and issue a refund check. Delays can occur due to:

  • IRS backlog

  • Missing or unclear documentation

  • Filing errors (e.g., incorrect quarter or wage data)

To avoid delays, keep detailed payroll records and consult a tax professional—or consider outsourcing back-office operations to a team that handles payroll compliance end-to-end.



ERTC Filing Deadlines (Don’t Miss These)

There’s still time—but not much.

  • For 2020 quarters, you must file by April 15, 2024

  • For 2021 quarters, the deadline is April 15, 2025

If you haven’t filed yet, get started now to avoid losing your chance at thousands in credits.



Real-Life Example: How One Small Business Claimed $182,000 in Credits

A New York-based digital agency with 11 full-time employees experienced revenue drops of 60% in Q2 2020 and 30% in Q1 2021. They initially didn’t pursue the ERTC due to confusion about PPP restrictions.

Later, working with a compliance partner, they retroactively filed 941-X forms for four quarters. With clear payroll data, they received:

  • $55,000 for 2020

  • $127,000 for Q1–Q3 2021

  • Total refund: $182,000

The company reinvested funds into training, retention bonuses, and virtual assistant support. Today, they run leaner with AI-powered operations infrastructure.



5. Avoid Fraud & Stay Compliant

As the ERTC gained popularity, so did scams. The IRS has issued multiple warnings about aggressive promoters encouraging businesses to file falsely.


IRS Red Flags

  • Promoters promising “guaranteed credits” without checking eligibility

  • Charging large upfront fees based on a percentage of your credit

  • Submitting claims with no supporting documentation

If your business submits a fraudulent claim, you could be liable for penalties, interest, and repayment—even if a third-party filed it.


IRS Crackdown & Program Pauses

In 2023, the IRS paused processing of new ERTC claims to review fraud risks. They’ve since introduced:

  • Voluntary disclosure programs for those who mistakenly claimed

  • Penalty relief options for businesses acting in good faith

Learn how to build fraud-proof workflows in our operational risk management guide.



6. What to Do with the Funds

Let’s say you filed correctly and received your refund—what next?


Reinvest in Workforce Stability

Use the credit to:

  • Offer retention bonuses to high-performing staff

  • Fund training programs to upskill your team

  • Expand your workforce through remote virtual assistants

See how OpsArmy helps businesses retain top talent affordably.


Offer Employee Retention Bonuses

ERTC refunds provide a rare chance to reward team members who helped your business survive a tough time. Consider using a portion to fund:

  • Stay bonuses for long-tenured staff

  • Referral bonuses to attract new talent

  • Upskilling stipends for training and certifications

Learn how to structure these offers in our employee retention bonus guide.


Stabilize Back-Office Operations

Many teams used ERTC funds to:

  • Catch up on deferred payments

  • Automate manual systems

  • Hire operations support without bloating headcount

Our clients often use tax credits to streamline admin and hiring with AI-powered ops.


Expand Operational Capacity with Virtual Teams

Instead of relying solely on full-time hires, many businesses are using ERTC refunds to expand capacity with on-demand virtual assistants. These roles cover admin, customer service, marketing ops, and HR—without the overhead of traditional staffing.

For example, a finance firm used part of their credit to onboard two OpsArmy VAs who now handle weekly reporting and client onboarding. The result? A 40% reduction in administrative workload.



7. Future Considerations & Related Programs


Interplay with Other Programs

The ERTC can be combined with:

  • PPP (Paycheck Protection Program)—as long as wages aren’t double-used

  • Work Opportunity Tax Credit (WOTC)

  • Paid Family Leave credits

Track eligibility carefully and maintain clean records for each program.


Pending Legislative Updates

As of 2024, there are no new ERTC extensions. However, proposed legislation could:

  • Extend deadlines for filing

  • Expand eligibility for certain sectors

  • Offer enhanced record review periods

Check IRS.gov for real-time updates and advisories.


Recordkeeping Best Practices

Keep:

  • Payroll reports (gross wages, health costs)

  • Government order documentation

  • Revenue comparisons vs. 2019

Want to build a strong audit trail? See how digital ops systems improve retention & compliance.


Audit-Proof Your ERTC Claim

To reduce audit risk:

  • Create a claim packet with copies of payroll reports, quarterly tax forms, and internal memos

  • Store government order links or screenshots for shutdown proof

  • Keep logs of who prepared the claim and what documents were used

OpsArmy recommends using AI-assisted compliance tracking to simplify retention schedules, deadlines, and tax records. Read how automation improves audit resilience.



Conclusion

The Employee Retention Tax Credit could mean $5,000 to $26,000 per employee for your business. But filing deadlines are closing fast.

To recap:

  • You can still claim credits retroactively by filing Form 941-X

  • Stay compliant—avoid aggressive promoters or false claims

  • Use recovered funds to reinvest in your people and operations

Even if your business weathered COVID without layoffs, you may still qualify for this credit. Many employers miss out simply due to confusion around eligibility rules or fear of IRS follow-up.

Rather than leaving money on the table, consider this:

  • The average eligible small business claims $150K–$300K

  • The funds can help modernize your team, systems, and workflows

  • The deadline for 2020 claims has already passed—2021 is next

Don't let red tape stop you from reclaiming what you’ve earned.

Need help executing retention programs or expanding smartly? OpsArmy’s virtual teams support operations so you can stay focused on growth.



OpsArmy Brand Blurb

OpsArmy is building AI-native back office operations as a service (OaaS). We help businesses run their day-to-day operations with AI-augmented teams, delivering outcomes across sales, admin, finance, and hiring.

In a world where every team is expected to do more with less, OpsArmy provides fully managed “Ops Pods” that blend deep knowledge experts, structured playbooks, and AI copilots. Think of us as your operational infrastructure: running faster, leaner, and smarter business execution. Visit https://www.operationsarmy.com to learn more.



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