An ERC payment is a refund from the IRS for wages you paid to employees during COVID-19 shutdowns, even if you also received a PPP loan.

The Employee Retention Credit (ERC) is a tax refund program, not a loan. You claim it on an amended tax return (Form 941-X for payroll taxes, or Form 3115 for income tax purposes), and the IRS sends you money back. The payment covers up to 50% of may have access to wages paid between March 2020 and December 2021, with a maximum of $5,000 per employee per quarter in 2020 and $5,000 per employee per quarter in 2021—meaning a single employee could generate up to $20,000 in credits across the program's life.

The key difference from other pandemic relief: you do not have to repay an ERC refund, and you can claim it even if you received a Paycheck Protection Program (PPP) loan. However, you cannot claim the same wages twice—if you used wages to forgive a PPP loan, you cannot also claim them for the ERC. The IRS has been processing ERC claims since 2021, though the program officially ended on December 31, 2021.

Key Takeaways

  • An ERC payment is a refund from the IRS for wages paid during COVID-19 shutdowns, not a loan you repay.
  • You claim the credit on an amended payroll tax return (Form 941-X) or income tax return (Form 3115), depending on your tax structure.
  • The maximum credit is $5,000 per employee per quarter in 2020 and $5,000 per employee per quarter in 2021, for a total of up to $20,000 per employee.
  • You cannot claim the same wages for both PPP forgiveness and the ERC, but you can claim the ERC even if you received a PPP loan.
  • The IRS processes ERC claims through amended returns, and refunds typically arrive within 90 days to six months after the IRS accepts your claim.

Who qualifies for an ERC payment

You may have access to if your business was in operation during 2020 or 2021 and you meet one of two conditions: either your gross revenue declined by 20% or more in a quarter compared to the same quarter in the prior year, or you were subject to a government order that fully or partially suspended your operations.

The suspension does not have to be a complete shutdown. If a government order restricted your capacity, hours, or the types of services you could offer—such as indoor dining limits, occupancy caps, or closure of certain business lines—you likely may have access to. This includes orders from state, local, tribal, or federal authorities. You do not need to prove financial hardship; the order itself is enough.

Nonprofits, sole proprietors, partnerships, S-corporations, and C-corporations all may have access to. You must have paid wages to employees (including yourself if you are a sole proprietor with employees, though rules for self-employed income are stricter). Seasonal businesses can claim the credit, but only for quarters when they were normally operating.

How to claim an ERC payment

You file an amended return using Form 941-X (Adjusted Employer's Quarterly Federal Tax Return for Wages Withheld) if you are claiming the credit based on payroll taxes. You submit this form to the IRS, not to your state. If you are a sole proprietor or partnership claiming the credit against income tax rather than payroll tax, you use Form 3115 (Application for Change in Accounting Method) or amend your income tax return directly.

The process requires documentation: payroll records showing wages paid each quarter, proof of the government order that suspended your operations (or revenue records showing the 20% decline), and a calculation of which wages may have access to. You do not submit these documents with your amended return, but you must keep them in case the IRS requests them during an audit.

Filing yourself is possible but error-prone. Many businesses work with a CPA or tax professional who specializes in ERC claims, since the rules about which wages count (wages used for PPP forgiveness do not count, wages paid to employees on unemployment do not count, and certain other wages are excluded) are complex. The IRS has been auditing ERC claims at a higher rate than typical returns, so accuracy matters.

Timeline for receiving an ERC payment

After you file your amended return, the IRS typically takes 90 days to six months to process it and issue your refund. Some claims move faster; others take longer if the IRS requests additional documentation or flags the return for review. You can check the status of your claim using the IRS's Where's My Refund tool, though it does not always show ERC claims specifically.

If the IRS denies your claim, you receive a notice explaining why. Common reasons include claiming wages that were also used for PPP forgiveness, failing to prove the government order or revenue decline, or claiming wages that do not meet the definition of may have access to wages. You can appeal a denial or file a claim in U.S. Tax Court, though this requires legal representation and is expensive.

ERC payments and PPP loans: what you need to know

You can receive both a PPP loan and an ERC refund, but not for the same wages. If you used certain wages to forgive your PPP loan, you cannot claim those same wages for the ERC. However, if you paid other wages that were not part of your PPP forgiveness calculation, you can claim those for the ERC.

Many businesses received PPP loans early in the pandemic and did not realize they could also claim the ERC. If this is your situation, you can still file an amended return to claim the credit for wages that were not used in your PPP forgiveness. The IRS has extended the deadline for filing ERC claims multiple times; as of now, you generally have three years from the original return due date to claim the credit, though this deadline has shifted and you should confirm the current deadline with a tax professional.

What happens if the IRS audits your ERC claim

The IRS has increased audits of ERC claims because the program was popular and some claims were filed incorrectly or fraudulently. If you receive an audit notice, the IRS will ask you to provide documentation: payroll records, government orders, revenue records, and proof that you did not claim the same wages for PPP forgiveness.

An audit does not automatically mean your claim is denied. Many audits result in approval after you provide the requested documents. However, if the IRS determines that you do not meet the requirements—for example, if your business was not actually suspended or your revenue did not decline by 20%—they will deny the claim and you will owe back the refund plus interest. If the IRS finds that you filed fraudulently, you may face penalties.

Having documentation from the time you filed is critical. Keep copies of the government orders that affected your business, your payroll records for each quarter, and your revenue records. If you worked with a tax professional to file the claim, they should have copies as well.

Frequently Asked Questions

Can I claim the ERC if I already received PPP forgiveness?

Yes, but only for wages that were not used to calculate your PPP forgiveness. If you used certain wages in your PPP forgiveness application, you cannot claim those same wages for the ERC. You can file an amended ERC return claiming only the wages that were not part of your PPP calculation.

What counts as a government order that suspended my business?

Any order from a state, local, tribal, or federal authority that fully or partially suspended your operations counts. This includes capacity limits, occupancy restrictions, closure of specific business lines, mask mandates that affected your operations, or orders to close indoor dining. The order must have been in effect during the quarter you are claiming.

How much can I receive in total from the ERC?

The maximum is $5,000 per employee per quarter in 2020 and $5,000 per employee per quarter in 2021. A business with 10 employees could claim up to $400,000 total (10 employees × $5,000 × 8 quarters). The actual amount depends on how many may have access to wages you paid in each quarter.

What if I filed my ERC claim and now the IRS is asking for more information?

Respond to the IRS request within the deadline they provide, usually 30 days. Send copies of payroll records, government orders, revenue documentation, and any other proof they requested. Keep a copy for your records. If you worked with a tax professional, contact them to help you respond.

Can I amend my ERC claim if I made a mistake?

Yes. You can file another amended return to correct errors, such as including wages that should not have been claimed or missing quarters you should have claimed. However, the IRS has time limits for amending returns, typically three years from the original due date, so act quickly if you discover an error.