How to Claim the "Employee Retention Credit" (ERC) in 2026: Is it Still Possible?

Imagine discovering tens of thousands of dollars in your business's pocket—funds you earned by keeping employees on payroll during the toughest days of the COVID-19 crisis. That's the promise of the Employee Retention Credit (ERC), a lifeline from the CARES Act that rewarded businesses for retaining staff amid shutdowns and revenue drops.But in 2026, can you still claim it? The short answer is yes—for most quarters, you have until April 15, 2025, to file, but with the IRS cracking down on fraud, time is critical and eligibility is stricter than ever. This guide breaks down everything American business owners need to know about pursuing ERC claims in 2026, straight from IRS guidelines and expert insights.

What is the Employee Retention Credit (ERC)?

The ERC is a refundable tax credit designed to help U.S. employers keep workers on the payroll during the COVID-19 pandemic. Introduced under the CARES Act and expanded by later legislation, it lets eligible businesses claim a percentage of qualified wages paid to employees—up to $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021, for a potential maximum of $28,000 per employee in 2021 alone.^[3][4][6] These credits offset payroll taxes, including Social Security taxes, and any excess becomes a direct refund.

Unlike loans, the ERC doesn't need repayment if you qualify. It's available even if you received Paycheck Protection Program (PPP) forgiveness, as long as PPP-funded wages aren't double-dipped for ERC.^[4][7] Small businesses (under 100 full-time employees in 2019 for 2020 claims, or 500 for 2021) could claim wages for all employees, while larger ones limited it to those not providing services due to pandemic impacts.^[6]

ERC Credit Amounts: 2020 vs. 2021

Understanding the differences is key to calculating your potential refund:

• 2020: 50% of qualified wages up to $10,000 per employee (max $5,000 credit per employee). Available March 13 to December 31, 2020.^[3][6]
• 2021: 70% of qualified wages up to $10,000 per employee per quarter (max $7,000 per quarter, or $28,000 yearly). Available through September 30, 2021, with recovery startup extensions to December 31.^[4][6][7]

For example, a restaurant with 20 employees qualifying for all four 2021 quarters could claim up to $560,000—real money that helped many U.S. businesses like yours survive.^[2]

Is the ERC Still Available in 2026?

Yes, but the window is slamming shut. The IRS halted new ERC claims in September 2023 to curb widespread fraud from aggressive promoters promising refunds to ineligible businesses.^[1] However, legitimate claims filed before that cutoff—or retroactive filings within deadlines—remain processable.

Key deadlines for amended returns (Form 941-X):

• 2020 quarters: Due by April 15, 2024.
• 2021 quarters: Due by April 15, 2025.

We're now in 2026, so 2020 claims are time-barred unless you filed timely. For 2021, if you haven't filed, act immediately—deadlines are firm under IRS rules, and late claims risk denial. Recovery startup businesses (those starting after February 15, 2020) had until April 15, 2025, for Q3/Q4 2021 claims up to $50,000 per quarter.^[1][5][6] Check your statute of limitations; some extensions apply if under audit.

"Some promoters tell taxpayers that every employer qualifies for ERC. This is not true. Eligibility...depends on your specific facts and circumstances."^[5]

ERC Eligibility Requirements: Do You Qualify?

Not every business qualifies—fraudulent claims have led to audits and repayments. You must meet one of these tests and have paid qualified wages to W-2 employees (self-employed sole proprietors can't claim their own wages).^[5][7]

1. Full or Partial Suspension of Operations

Your business faced a government order (federal, state, or local) due to COVID-19 that limited commerce, travel, or meetings, causing suspension. Examples: capacity limits, stay-at-home orders, or supply chain disruptions from mandates. It doesn't need to shutter you completely—just significantly impair operations.^[1][5][7]

Tip: Document the specific order and its impact, like a California gym limited to 20% capacity.

2. Significant Decline in Gross Receipts

• 2020: 50% drop in a quarter vs. the same 2019 quarter (eligible for that quarter + next).^[2]
• 2021: 20% drop vs. 2019 (eligible for that + next quarter).^[2][7]

A retail store with Q2 2021 receipts at 15% of 2019 levels qualifies. Use Schedule C or Form 1120 data for proof.^[2]

3. Recovery Startup Business

Businesses starting after February 15, 2020, with under $1 million in 2019-equivalent receipts qualify for Q3/Q4 2021 (max $50,000/quarter total, not per employee). You can't qualify under other tests.^[1][2][5]

Health plan costs count as qualified wages. Territories like Puerto Rico are eligible.^[5]

How to Claim the ERC in 2026: Step-by-Step Guide

Claims go on original or amended Form 941 (quarterly payroll tax return) via Form 941-X. Here's your actionable roadmap:

1. Gather Records: Payroll reports, receipts, government orders. Use 2019 W-2s/941s for baselines.
2. Confirm Eligibility: Take free IRS quizzes or consult a CPA. Avoid paid promoters—many are scams.^[5]
3. Calculate Wages: Tally qualified wages (up to limits), apply 50%/70% rate. Tools like IRS worksheets help.
4. File Form 941-X: Mail to IRS (electronic for some). Include ERC on Line 18 for 2020, Line 31 for 2021.^[1][7]
5. Wait for Processing: Backlog means 6+ months; track via IRS "Where's My Refund?" No new claims post-2023 moratorium, but pre-filed process.
6. Handle Audits: IRS is auditing 2020-2021 claims aggressively. Keep docs for 6 years.

Pro Tip: If you filed incorrectly, voluntary disclosure avoids penalties. Visit IRS.gov/ERC for forms.^[7]

Common Mistakes to Avoid

• Double-claiming PPP wages.^[7]
• Ignoring small employer vs. large employer rules.^[6]
• Missing the April 15, 2025, deadline for 2021.

Real-World Examples for U.S. Businesses

A Midwest manufacturing firm hit by Michigan shutdowns claimed $150,000 for 2020 wages. A New York startup (post-Feb 2020) grabbed $100,000 for late 2021. Even nonprofits and territories qualify if docs align.^[5]