Filing for Employee Retention Credits (ERC) can result in substantial cash refunds for eligible businesses—but only if the process is done correctly. Errors in documentation, calculations, or filing can cause delays, reduce your refund, or trigger IRS scrutiny. By understanding the correct process and avoiding common pitfalls, you can secure your Employee Retention Credits smoothly and confidently.
Understanding the Filing Process for Employee Retention Credits
The ERC program rewards businesses that kept employees on payroll during certain periods in 2020 and 2021. To claim your refund, you’ll need to file amended payroll tax returns for the eligible quarters. This is done by submitting Form 941-X for each quarter where you qualify.
Unlike PPP loans, which required an application through a lender, Employee Retention Credits are claimed directly through the IRS payroll tax process. This means accuracy in your filings is critical for timely approval.
Steps to File for Employee Retention Credits
1. Determine Eligibility
Before filing, confirm that your business qualifies for Employee Retention Credits based on either:
- A significant decline in gross receipts, or
- A partial/full suspension of operations due to a COVID-19-related government order.
2. Calculate Your Credit Accurately
Determine the total qualified wages and health plan costs for each eligible quarter. The ERC amount depends on:
- 2020: Up to $5,000 per employee for the year.
- 2021: Up to $7,000 per employee per quarter (first three quarters).
3. Prepare Supporting Documentation
Gather:
- Payroll records.
- Health plan expense statements.
- Revenue comparisons for 2019, 2020, and 2021.
- Copies of relevant government orders.
4. Complete Form 941-X
For each eligible quarter, file an amended Form 941-X. Clearly indicate your adjustments and ensure all amounts match your supporting documents.
5. Submit to the IRS and Track Your Claim
Mail the completed forms to the IRS address listed in the instructions. Keep a copy of everything and track submission dates for follow-up.
Common Filing Mistakes to Avoid
- Misunderstanding Eligibility Rules
Many businesses wrongly disqualify themselves or claim ineligible quarters. Review both revenue decline and government order tests. - Double Counting Wages with PPP
You cannot use the same wages for both PPP forgiveness and Employee Retention Credits. Allocate wages carefully. - Incomplete Documentation
Missing proof of eligibility can delay your claim or result in rejection. - Calculation Errors
Even small miscalculations can trigger processing delays or adjustments. - Filing Late
You generally have up to three years from the original filing date to amend payroll returns—but waiting too long risks missing the window.
The Role of Professional Help
While some businesses handle ERC filings in-house, many choose to work with ERC specialists or experienced tax professionals. These experts can identify additional eligible wages, ensure compliance with complex rules, and help avoid costly mistakes that could jeopardize your refund.
Conclusion
Filing for Employee Retention Credits without mistakes requires a clear understanding of eligibility rules, careful documentation, and accurate calculations. The reward for getting it right can be substantial—tens or even hundreds of thousands of dollars in tax refunds. By following a step-by-step approach and avoiding common errors, you can claim your ERC confidently and unlock a valuable cash flow boost for your business.
