ERC money refers to the Employee Retention Credit, a refundable tax credit the federal government created during the COVID-19 pandemic to help businesses keep employees on payroll. It was not a loan or a grant but a credit against payroll taxes, meaning eligible employers could receive cash back from the IRS for wages they paid during 2020 and 2021. The maximum credit reached $5,000 per employee for 2020 and up to $26,000 per employee across 2021.
How the Credit Works
The ERC is calculated as a percentage of “qualified wages,” which includes both the wages you paid employees and certain health care expenses. The credit was claimed on your quarterly federal employment tax return (Form 941), either when originally filed or by submitting an amended return afterward. Because it is a refundable credit, you could receive money back from the IRS even if the credit exceeded the payroll taxes you owed.
The program covered wages paid between March 13, 2020, and December 31, 2021. Congress originally created it in the CARES Act, then expanded it significantly in later legislation, increasing both the credit percentage and the per-employee cap for 2021.
Credit Amounts for 2020 and 2021
The credit was more generous in 2021 than in 2020, and the math differed for each period:
- 2020: 50% of qualified wages, up to $10,000 in wages per employee for the entire year. That means the maximum credit was $5,000 per employee for all of 2020.
- 2021: 70% of qualified wages, up to $10,000 in wages per employee per quarter. With up to four qualifying quarters, the maximum credit was $7,000 per quarter, or $28,000 per employee for the full year. Most employers could only claim three quarters (Q1 through Q3), capping the practical maximum at $21,000 per employee unless they qualified as a recovery startup business for Q4.
Combined across both years, a single employee could generate up to $26,000 in credits for most businesses. For a company with 50 employees, that could mean well over $1 million in refunds.
Who Qualified
To claim the ERC, an employer had to meet at least one of three tests for the relevant time period:
- Government suspension test: Your business operations were fully or partially suspended due to a government order related to COVID-19 that limited commerce, travel, or group meetings. A partial suspension counted if at least 10% of your business (measured by gross receipts or employee hours) was affected by the order, or if the order caused at least a 10% reduction in your ability to provide goods or services normally.
- Gross receipts decline test: For 2020, your quarterly gross receipts dropped below 50% compared to the same quarter in 2019. For 2021, the threshold was less strict: gross receipts needed to fall below 80% of the same quarter in 2019.
- Recovery startup business: For Q3 and Q4 of 2021 only, businesses that started after February 15, 2020, and had average annual gross receipts under $1 million could qualify even without meeting the other two tests.
Employers who received Paycheck Protection Program (PPP) loans were initially excluded but became eligible after Congress changed the rules in late 2020. However, the same wages cannot be used for both PPP loan forgiveness and the ERC.
Where ERC Claims Stand Now
The IRS imposed a moratorium on processing new ERC claims in September 2023 after widespread fraud and aggressive marketing by third-party promoters who pushed ineligible businesses to file. Hundreds of thousands of claims remain in the IRS pipeline, and the Taxpayer Advocate Service has recommended that the IRS complete processing all remaining claims by the end of 2025, with priority given to taxpayers facing financial hardship.
If you filed a claim that was disallowed, you generally have two years from the date on the IRS disallowance notice (typically Letter 105C or 106C) to either reach an agreement with the IRS, file a refund suit in federal court, or request an extension using Form 907. Missing that two-year window has serious consequences: you lose the right to go to court, and the IRS is legally barred from issuing the refund even if your claim turns out to be valid.
Promoter Scams and Withdrawal Options
A cottage industry of ERC promoters emerged during 2021 and 2022, often charging contingency fees of 15% to 25% of the refund and filing claims for businesses that clearly did not qualify. Warning signs of an illegitimate claim include a promoter who told you every business qualifies, who calculated your credit without reviewing your financial records, or who based eligibility on broad “supply chain disruption” arguments without tying them to a specific government order.
The IRS created a voluntary withdrawal program for businesses that filed claims but have not yet received payment and now believe they were ineligible. Withdrawing treats the claim as if it was never filed, avoiding the need to repay a refund plus interest and penalties later. There is also a separate voluntary disclosure program for businesses that already received ERC refunds and want to return the money at a reduced penalty. If you received a refund you were not entitled to, the IRS has signaled it will pursue repayment through audits, so addressing the issue proactively is significantly less costly than waiting.
How to Check the Status of a Pending Claim
If you filed an amended return (Form 941-X) to claim the ERC and are still waiting, the IRS does not have a dedicated online tracker for these claims. You can call the IRS business tax line, but wait times have been long due to the volume of claims. Your tax professional can also check by contacting the IRS practitioner priority line. Given the backlog, processing times have stretched well beyond the typical 6 to 9 months, with many claims pending for over a year.
If your claim is legitimate and well-documented, patience is the main requirement. Keep records of the government orders that affected your business, your gross receipts calculations for the relevant quarters, and payroll records showing exactly which wages were used for the credit. The IRS has been auditing ERC claims at higher rates than normal employment tax returns, so having organized documentation ready will make a potential review much smoother.