Yes, Employers Can Still Claim the Employee Retention Credit Via an Amended Tax Return

According to the IRS, employers can still claim the employee retention credit (ERC) by filing amended employment tax returns, even though the coronavirus (COVID-19) pandemic-era tax credit aimed at helping employers and employees during the health crisis expired last year.

ERC begins. 

The ERC is a provision from the Coronavirus Aid, Relief, and Economic Security Act (CARES; P.L. 116-136) Act that allowed for a tax credit against certain employment taxes for eligible employers that paid qualified wages, including certain health plan expenses, to certain employees. This began on March 12, 2020 and was initially to end at the end of 2020 (see Payroll Guide ¶20,905 ).

ERC amended and extended. 

The ERC was extended until June 30, 2021 by the Consolidated Appropriations Act (CAA;  P.L. 116-260) and further extended through the end of 2021 by the American Rescue Plan Act of 2021 (ARPA;  P.L. 117-2).

Early ERC termination. 

However, the Infrastructure Investment and Jobs Act (Infrastructure Act;  P.L. 117-58) retroactively terminated the ERC for most employers, beginning on October 1, 2021. Recovery startup businesses were the only employers allowed to claim the credit through the end of 2021. A recovery startup business is any employer that began operations after February 15, 2020 subject to certain average annual gross receipts requirements.

Reporting and claiming the ERC. 

Generally, eligible employers claimed the ERC by reporting their total qualified wages and the related health insurance costs for each quarter on their  Forms 941 (Employer's Quarterly Federal Tax Return).

Revised employment tax forms. 

In order to account for COVID-19 tax credits like the ERC, the IRS had to revise Form 941 (and other forms in the 941 series) several times. The IRS also revised  Form 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund).

Using a adjusted return to claim the ERC. 

The current version of the Form 941-X has multiple line numbers for making corrections and amendments regarding the ERC. These adjustments are reported on Form 941-X as follows: 

1.       Line 18a is for the nonrefundable portion of the ERC,

2.       Line 26a is for the refundable portion of the ERC,

3.       Line 30 is for the qualified wages of the ERC,

4.       Line 31a is for qualified health plan expenses for the ERC,

5.       Line 31b is a checkbox indicating if the employer is eligible for the ERC in the third or fourth quarter of 2021 solely because the employer is a recovery startup business, and

6.       Line 33a is for the qualified wages paid from March 13, 2020 through March 31, 2020 for the ERC. 

Worksheets for adjusting the ERC. 

There are also two worksheets in Form 941-X instructions that related to the ERC. Worksheet 2 is the adjusted ERC for wages paid after March 12, 2020 and before July 1, 2021. Worksheet 4 is the adjusted ERC for wages paid after June 30, 2021 and before January 1, 2022 (October 1, 2021 for most employers, except startup recovery businesses).

Period of limitations for amended employment tax returns. 

According to the Form 941-X instructions, employers may correct overreported taxes on a previously filed Form 941 if the Form 941-X is filed within three years of the date Form 941 was filed or two years from the date you paid the tax reported on Form 941, whichever is later.

The instructions also say that employers may correct underreported taxes on a previously filed Form 941 if the Form 941-X is filed three years of the date the Form 941 was filed.

The IRS refers to these time frames as a "period of limitations." And, for purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.

Employers can still claim the ERC. 

Through an IRS media relations correspondence,  Thomson Reuters  has confirmed that employers can still claim the ERC, even if the employer never claimed the credit during the time period the ERC was available.

This is because the window of opportunity to amend employment tax overpayments has not yet expired with relation to the period of time the ERC was available. So, if an employer currently discovers that it was eligible for the ERC when the credit was available, the employer would file a Form 941-X to report the overpayment in employment taxes and ultimately claim the ERC after its termination date.

Qualifying credit tool still available.  Thomson Reuters  developed an Employee Retention Credit Eligiblity Tool that helps employers determine if they qualify for the employment tax credit. The Tool is free and is still active for employers to use and to see if they may qualify for this credit. 

 Reach out to your FMD Advisor to determine whether you qualify.