The ERC (Employee Retention Credit) has provided billions of dollars in financial relief to businesses impacted by the COVID-19 pandemic. Designed to reward employers who kept staff on payroll during economic hardship, the ERC can deliver substantial refunds—sometimes reaching hundreds of thousands of dollars. However, many companies make costly errors when applying for the ERC, resulting in reduced refunds, delayed payments, or even rejected claims. By learning the most common pitfalls and how to avoid them, your business can maximize its ERC benefit.
The ERC is a refundable payroll tax credit introduced under the CARES Act in 2020. Unlike loans, it does not require repayment and is available for eligible wages and certain healthcare costs paid in 2020 and 2021. Businesses can claim up to $26,000 per employee through the ERC, depending on the qualifying period and wages paid.
The ERC can be claimed retroactively by filing amended payroll tax returns, making it possible for businesses to still recover significant funds.
Even though the ERC is a highly valuable program, its complex rules have led to many errors in claims.
Many employers mistakenly believe they do not qualify for the ERC, especially if they received a PPP loan. While early rules prevented businesses from claiming both, updated legislation allows it—as long as the same wages are not double-counted.
The ERC doesn’t only apply to businesses that closed completely. If your operations were restricted due to government orders—such as reduced capacity, limited hours, or supply chain disruptions—you may still qualify.
The ERC is calculated based on specific wage and healthcare cost rules. Misclassifying employees, overlooking part-time staff, or failing to allocate wages correctly between PPP and the ERC can drastically reduce your refund.
The ERC can be claimed retroactively, but there are strict deadlines:
Missing these dates means forfeiting the opportunity to claim the ERC entirely.
To ensure your ERC claim is accurate and maximized, follow these best practices.
An expert familiar with ERC regulations can identify overlooked eligibility factors, including partial suspension qualifications many businesses miss.
Don’t forget that certain healthcare costs can be included when calculating the ERC. Adding these can significantly increase your total refund.
Keep detailed records of revenue comparisons, government orders that impacted operations, payroll reports, and healthcare expense documentation to support your ERC claim.
If you haven’t yet claimed the ERC, file Form 941-X for eligible quarters as soon as possible to avoid delays and ensure you meet deadlines.
While it is possible to apply for the ERC independently, working with professionals can help you avoid errors, speed up processing, and maximize your refund. Tax credit specialists understand the nuances of ERC rules and can handle complex calculations while ensuring compliance with IRS requirements.
The ERC is one of the most powerful financial relief programs available to businesses, but mistakes in the application process can cost you significant money. By avoiding common errors, reviewing eligibility thoroughly, calculating wages accurately, and filing on time, you can secure the largest possible ERC refund. With deadlines approaching, now is the time to act—partner with experts if needed and make the ERC work to your business’s advantage.