The Employee Retention Tax Credit moved hundreds of billions of dollars through the payroll tax system between 2020 and 2021. It also spawned an aggressive cottage industry of ERC mills, which pushed thousands of employers to file questionable claims on commission. The IRS has been unwinding that backlog for years, with enforcement, moratoriums, and public warnings. This page covers what the ERTC actually is, who was eligible, why the window largely closed, and what to do if you're sitting on an unfiled claim or a disputed one today.
What the Employee Retention Tax Credit Covered
The ERTC was a refundable payroll tax credit available to employers that either experienced a full or partial suspension of operations because of a government COVID-19 order, or saw a significant decline in gross receipts. For 2020, the credit was up to $5,000 per employee annually (50% of up to $10,000 in qualified wages). For the first three quarters of 2021, it rose to $7,000 per employee per quarter (70% of up to $10,000 in quarterly qualified wages).
Recovery Startup Businesses (RSBs), defined as businesses started after February 15, 2020 with under $1 million in annual gross receipts, remained eligible through Q4 2021 with a per-quarter cap of $50,000. Eligible wages had to be paid to W-2 employees and could overlap in limited ways with PPP forgiveness.
Who Was Eligible for the ERTC?
Two eligibility paths: the government order test or the gross receipts test. The order test required a full or partial suspension of operations due to a COVID-related mandate. The receipts test required a significant drop in gross receipts compared to the same quarter in 2019 (50% decline for 2020 quarters; 20% decline for 2021 quarters).
Could You Claim ERTC and PPP?
Yes, but not on the same wages. Wages used to calculate PPP forgiveness could not also be used to claim ERTC. Most eligible employers carved up their payroll records carefully to maximize both programs without overlap.
Why the ERTC Window Largely Closed
In September 2023, the IRS imposed a processing moratorium on new ERTC claims after flagging widespread fraud and aggressive promoter activity. A voluntary disclosure program followed in 2024, giving employers who realized they'd filed questionable claims a path to repay 80% of what they received without penalties.
By 2026, the IRS is actively auditing ERTC claims, particularly those originated by third-party promoters. The IRS Employee Retention Credit page publishes current status, eligibility guidance, and warning signs of improper claims.
What to Do If You Have an Unfiled or Disputed Employee Retention Tax Credit Claim
If you believe you were legitimately eligible and haven't filed yet, the general statute of limitations for amending Form 941-X is three years from the original filing date (for 2020 claims, that window has mostly closed). Get documentation in order before filing: contemporaneous records of the government order or receipts decline, payroll detail showing eligible wages, and confirmation that wages weren't already claimed under PPP or other credits.
If you received ERTC funds and now have concerns about eligibility, talk to a tax attorney or CPA familiar with the voluntary disclosure program. Don't rely on the same promoter who filed the original claim. The IRS has been explicit about targeting firms that pushed ineligible clients through the process, and penalty exposure compounds if you wait for an audit letter. Related guidance on paying and reporting payroll costs is available through the IRS and the U.S. Department of Labor Wage and Hour Division .
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