How to Apply for the Employee Retention Credit (ERC): A Step-by-Step Guide

Last Updated on marzo 5, 2025 by Ewen Finser

The Employee Retention Credit (ERC) is a powerful tax incentive that was introduced as part of the CARES Act to help businesses retain employees during the COVID-19 pandemic. Many businesses that experienced revenue declines or were subject to government shutdowns can still apply for this refundable tax credit retroactively, even though the days of the pandemic are long behind us.

The ERC was available for wages paid between March 13, 2020, and December 31, 2021, and while credits cannot be claimed for wages paid after that period, eligible businesses can still apply retroactively by filing amended payroll tax returns. However, deadlines are fast approaching, and businesses must act quickly to ensure they claim the credit before the IRS statute of limitations expires. 

The statute of limitations is right on the cusp of arrival (a mere weeks away at the time of this publication) so for anyone looking to ensure that money is not left on the table for the invisible hand of Uncle Sam, you have to work quickly.

Follow this step-by-step guide to apply for the ERC. I’ve included required forms, supporting documentation, IRS submission guidelines, and best practices to ensure compliance, so that you can get your application in quickly and efficiently.

Step 1: Understanding the ERC Application Deadlines

Since the ERC is a payroll tax credit rather than an income tax credit, employers must claim it using Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for each applicable quarter.

ERC Filing Deadlines for Retroactive Claims:

• For 2020 wages: Employers must have submitted amended filings by April 15, 2024.
• For 2021 wages: Employers must submit amended filings by April 15, 2025.

These deadlines reflect the IRS’s three-year statute of limitations for amending payroll tax returns. Once the deadline passes, businesses will no longer be able to claim the ERC for that period. This is the ever fast approaching deadline that is only a few weeks away, which is why these forms need to be submitted as soon as possible! Filing early will help ensure it’s received on time as the IRS is notoriously understaffed right now as we are in the middle of tax season.

Step 2: Gather the Required Documentation

Before completing IRS forms, businesses should collect all necessary payroll records and financial documentation to support their ERC claim.

The essential documents are as follows:

1. Payroll Records for Each Applicable Quarter
   • Employee wage statements (often available through your accounting ERP)
   • Health insurance costs (if applicable)
   • Time records (if needed to differentiate full-time and part-time employees)
2. Quarterly IRS Form 941 (Employer’s Quarterly Federal Tax Return)
   • Employers must amend Form 941 for each quarter they are claiming ERC.  
   • Any previous corrections to Form 941 should be documented.
3. Government Orders (if applicable)
   • If applying due to a government-mandated suspension of operations, businesses should provide documentation of local, state, or federal orders that affected business activities.
4. PPP Loan Documentation (if applicable)
   • Employers who received a PPP loan must ensure they are not double-dipping by claiming the ERC on wages covered by PPP loan forgiveness.

Step 3: Calculate the ERC Credit Amount

The amount of ERC a business can claim depends on whether the wages were paid in 2020 or 2021, as the credit amounts and eligibility rules changed between the two years.

The ERC Calculation for 2020 is relatively straightforward. The credit amount is 50% of qualified wages, up to $10,000 per employee for the entire year. Therefore, the maximum credit is $5,000 per employee for the year 2020, and only full time employees qualify. Part time employees do not qualify, and typically the IRS assumes that anyone working under 32 hours per week is considered part time. An example of the calculation is below:

• A business has 15 full-time employees and paid each $12,000 in eligible wages in 2020.
• The ERC is 50% of the first $10,000 per employee, or $5,000 per employee.
• 15 employees × $5,000 = $75,000 total ERC credit for 2020.

The ERC Calculation for 2021 is similar, and just as straightforward, except more funds are available. The credit amount is 70% of qualified wages, with up to $10,000 being eligible per employee per quarter. The maximum credit is $7,000 per employee (per quarter), up to $21,000 for each employee. Additionally, both full and part time employees qualify. An example calculation is below:

• A business has 10 employees and paid each $10,000 per quarter in Q1, Q2, and Q3 of 2021.
• The ERC is 70% of the first $10,000 per quarter per employee, or $7,000 per employee per quarter.
• 10 employees × $7,000 × 3 quarters = $210,000 total ERC credit for 2021.

Step 4: Complete IRS Form 941-X

Since the ERC is claimed retroactively, employers must file Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) to amend their original payroll tax returns. 

The form can be downloaded directly from the IRS’s website and populated as a PDF. Most softwares will allow you to populate the form, but you must mail the form in, as it can no longer be filed electronically.

The key sections to complete on Form 941-X for the Employer Retention Credit are as follows, and flow down the page. The first section are the softball questions where you’ll be asked what your business name is, it’s EIN, and what Tax Period you’re amending. You’ll also then be asked for what quarter you’re submitting the 941-X for (in this instance, since we’re so close to the deadline it’ll be the fourth quarter of 2021.)

Following the softball questions, you’ll then have to enter additional technical details to claim your credit. Those are as follow:

1. Adjust Wages for ERC Credit
   • Line 18a (2021) or Line 30 (2020): Enter the sum of all qualified wages.
   • Line 23: Report the nonrefundable portion of the ERC.
   • Line 26: Report the refundable portion of the ERC.
     1. These amounts will be based off the calculations we walked through earlier in the article.
2. Provide Explanation for Adjustments (Part 5)
   • Clearly state: “Claiming the Employee Retention Credit for wages paid in [Quarter, Year].” There is no benefit to providing additional details or context as it could delay processing of the credit if you’re too specific.
3. Review and Sign the form.

Step 5: Submit Form 941-X to the IRS

Form 941-X must be mailed to the IRS at the correct address based on the business’s location. Best practices when submitting the forms are to use certified mail with tracking to confirm the IRS has received the documents, as well as maintaining multiple copies of all forms submitted for record keeping purposes. 

When there are thousands or hundreds of thousands of dollars on the line, a simple oversight such as lost paperwork can not be taken lightly.

Step 6: Track the ERC Refund Status

Since ERC claims are subject to IRS processing times, it may take several months before refunds are issued. As a CPA, my personal returns for many of my clients have taken as long as 24 months before receipt of funds. However, it was a long and lengthy process that was extremely difficult to convince the IRS that we were truly owed those funds. Other simpler and smaller returns were disbursed in just a few months.

Unfortunately, there is not a simple way to track the progress of these refunds other than calling the IRS at their 1800 number, and it can be almost impossible to get through to talk to someone. The phone lines are often so overloaded during this time of year that you’ll be fortunate if you receive a busy tone, and if you’re unlucky the call will continuously be disconnected.

Additional Housekeeping: Beware of ERC Scams

The IRS has warned against fraudulent ERC promoters who charge high upfront fees based on refund percentages. These fly-by-night companies will take a portion of your rightly earned funds, and then close up shop before any lawsuits can be filed on their bogus companies, often leaving honest business owners empty handed.

Reflexiones finales

Applying for the Employee Retention Credit (ERC) requires employers to act quickly before the April 15, 2025 (for 2021 wages) deadline.

By gathering payroll records, calculating what you’re owed using  the previously noted formulas, filing Form 941-X correctly, and avoiding ERC scams, businesses can successfully claim tens or even hundreds of thousands of dollars in refundable tax credits. If you need help, I recommend getting in touch with a CPA or a firm like IRSPlus to help guide you through the process.