Employee Retention Credit FAQs


The Employee Retention Credit (“ERC”) continues to provide many employers with significant refundable payroll tax credits for qualified wages paid to employees in 2020 and 2021.

  • For for-profit clients and individuals, the ERC is taxable as a reduction of expenses in the year it is reported for on the 941 payroll returns. It is taxable as a reduction of wages, not payroll taxes. Please consult your tax adviser.
  • The ERC is claimed by filing amended payroll tax returns (Form 941-X). The processing time on these has been up to a year for most ERC claims. The credits are being issued, with interest.
  • Potential ERC eligible quarters run from Q1 2020 through Q3 2021. Q4 2021 used to be eligible but was discontinued for all but recovery startup businesses in the infrastructure bill in late 2021.
  • Wages paid to a majority shareholder and their relatives are ineligible – the majority shareholder’s business and wages paid to non-related employees are still eligible.
  • Nonprofits may also be eligible for the credit.

If you believe you may be eligible for the ERC for 2021 (either through the 20% reduction in quarterly gross receipts compared to 2019 or through a partial government shutdown), and you have not yet applied for the credit, please consider an extension for your personal and business income tax returns. The IRS backlog is significant and it is likely we can process the 2021 credit before the extended deadlines, rather than going through an amended income tax return process.

If you would like to be evaluated for credit eligibility or to see a full list of documents that are needed for the ERC process, please reach out.

For more information about the Employee Retention Credit, please call our office or read through this blog post:  https://www.lmrpa.com/blog-employee-retention-credit/