Our experts answer readers' tax questions and write unbiased product reviews (here's how we assess tax products). In some cases, we receive a commission from our partners; however, our opinions are our own.

The Employee Retention Credit (ERC), part of the CARES Act, gives employers affected by COVID-19 a tax credit if they qualify.
Small businesses may be eligible based on how COVID-19 affected their business in 2020 and 2021.
Depending on when your small business filed and paid taxes, it may still be eligible to receive the credit.
Check your eligibility with Innovation Refunds.

The ripple effects of the COVID-19 pandemic can still be felt in the economy, and many small businesses are still recovering. In response to the financial hardships of the pandemic, the IRS enacted the Employee Retention Credit.

What is the Employee Retention Credit (ERC)?

The ERC is part of the CARES Act, and it was designed to help companies keep staff employed during the COVID-19 pandemic. Generally, the ERC is available to businesses that continued to pay employees while shut down due to COVID-19 or that saw significant financial declines.

There's still time to apply for the ERC. Depending on when your small business originally filed its taxes, you have either two years from when you paid or three years from when you filed — whichever is later. For businesses affected in 2021, that could be as late as 2025.

It's a good idea to consult with a licensed, qualified tax professional when applying for the ERC — the IRS has warned of third parties spreading misinformation. If you're trying to figure out how to apply, however, then follow these steps to file for the ERC.

 Your business may be eligible for a substantial refund through the Employee Retention Credit, with no upfront cost to you. Check your eligibility with Innovation Refunds.  How to apply for the ERC 1. Make sure you qualify for the ERC

The IRS doesn't limit the ERC to US businesses of any particular size, so there's likely no need to worry about whether your small business meets requirements based on size. However, the ERC only applies to qualified wages that were paid between March 13, 2020, and December 31, 2021.

Chances are, your business has already filed its tax return for 2020 and 2021. If you plan to apply for the ERC, you (or your accountant) would need to file an amended tax return for the appropriate years.

Your small business qualifies for the ERC if you meet any of the following conditions:

Your business "sustained a full or partial suspension of operations limiting commerce, travel or group meetings because of COVID-19."The business "experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021." The IRS says a "significant decline" is a reduction of 50% for the same quarter in 2019.Your business "qualified as a recovery startup business for the third or fourth quarters of 2021." A recovery startup business is an employer that meets all of the following criteria:The company started its business after February 15, 2020.Its average annual gross receipts for the past three years don't exceed $1 million.It isn't eligible for the ERC via other means. 2. File your form within 3 years, or within 2 years of payment

If your small business qualifies for the ERC, now you just need to file the appropriate adjusted employment tax return form. Most likely, it will either be the annual form 944-X or quarterly form 941-X, depending on how your business files.

The deadline to claim the ERC are generally found on the instructions accompanying the amended tax return form. You have either three years from when you filed form 941 or 944, or two years from the date you paid. That means you may still be eligible for certain years or quarters. 

After you've filed your claim, expect to wait a while before a refund is (hopefully) applied — as always, you'll have to wait for the IRS.

Next Steps: Check your eligibility with no upfront cost at Innovation Refunds. 

3. Watch out for ERC scams

Finally, be sure to read this IRS warning about ERC scams. Unfortunately, there are not-so-scrupulous third parties that "advertise their services targeting taxpayers who may not be eligible for the ERC." Exercise due caution and consult a licensed tax professional for any concerns.

A former schoolteacher, David Moadel has a master's degree in education and has provided written content for InvestorPlace, TipRanks, The Motley Fool, U.S. News & World Report, Crush the Street, Market Realist, TalkMarkets, Benzinga, and others. In addition, David hosts the popular financial YouTube channel Looking at the Markets and gladly covers a broad range of topics, from stocks and options to gold and silver, cryptocurrency, bonds, and more.

Read more
Read less