About the Employee Retention Credit (ERC)
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Learn everything about the Employee Retention Credit (ERC) tax strategy for 2026. Who qualifies, how to claim it, IRS rules, limits, and common mistakes to avoid. Uncle Kam helps you maximize this deduction.
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Common questions about the Employee Retention Credit (ERC) — answered by Uncle Kam's tax advisors.
The Employee Retention Credit (ERC) is a refundable payroll tax credit created by the CARES Act to help businesses that retained employees during the COVID-19 pandemic in 2020 and 2021. Eligible businesses can claim up to $26,000 per employee in total credits across both years. Uncle Kam helps businesses determine eligibility and file amended returns to claim any remaining ERC credits.
Yes — businesses can still file amended payroll tax returns (Form 941-X) to claim ERC credits for 2020 and 2021, subject to the statute of limitations. The deadline for 2020 claims is April 15, 2024, and for 2021 claims is April 15, 2025. Uncle Kam reviews your eligibility and files amended returns before the deadlines.
Businesses qualify if they experienced either a full or partial suspension of operations due to a government order related to COVID-19, or a significant decline in gross receipts (50% decline in 2020, 20% decline in 2021 compared to the same quarter in 2019). Tax-exempt organizations also qualify. Uncle Kam conducts a thorough eligibility analysis for your specific business.
For 2020, the credit is 50% of up to $10,000 in qualified wages per employee for the year, for a maximum of $5,000 per employee. For 2021, the credit is 70% of up to $10,000 in qualified wages per employee per quarter, for a maximum of $21,000 per employee. Uncle Kam calculates the exact credit amount based on your payroll records.
Qualified wages include wages and compensation paid to employees, as well as the employer's share of health plan expenses. For large employers (over 100 employees in 2020, over 500 in 2021), only wages paid to employees not providing services qualify. For small employers, all wages paid during the eligible period qualify. Uncle Kam identifies all qualifying wages to maximize your credit.
Yes — the Consolidated Appropriations Act of 2021 retroactively allowed PPP loan recipients to also claim the ERC. However, the same wages cannot be used for both PPP loan forgiveness and the ERC. Uncle Kam coordinates the allocation of wages between PPP forgiveness and ERC claims to maximize the combined benefit.
You claim the ERC by filing amended quarterly payroll tax returns using Form 941-X for each eligible quarter. The IRS will then issue a refund check for the credit amount. Uncle Kam prepares and files all necessary amended returns and tracks the status of your refund.
The ERC itself is not included in gross income, but you must reduce your deduction for wages by the amount of the credit claimed. This means the ERC effectively increases your taxable income by reducing your wage deduction. Uncle Kam ensures your income tax returns are properly adjusted to reflect the ERC.
A government order suspension occurs when a federal, state, or local government order required your business to fully or partially suspend operations. This includes orders to close, limit capacity, restrict hours, or modify operations in a way that more than nominally affected your business. Uncle Kam documents the specific government orders that affected your business to support your ERC claim.
For 2020, you qualify if gross receipts in any calendar quarter were less than 50% of gross receipts in the same quarter of 2019. For 2021, you qualify if gross receipts in any quarter were less than 80% of gross receipts in the same quarter of 2019. Uncle Kam analyzes your quarterly revenue data to identify all eligible quarters.
Recovery Startup Businesses — those that began operations after February 15, 2020 and have average annual gross receipts under $1 million — can claim a special ERC of up to $50,000 per quarter in Q3 and Q4 of 2021, regardless of revenue decline or suspension. Uncle Kam evaluates whether your startup qualifies as a Recovery Startup Business.
The IRS has significantly increased scrutiny of ERC claims due to widespread fraud and aggressive marketing by ERC mills. The IRS implemented a moratorium on processing new claims in September 2023 and has been auditing previously filed claims. Uncle Kam only prepares legitimate, well-documented ERC claims that can withstand IRS scrutiny.
Improper ERC claims can result in repayment of the credit plus interest and penalties of 20% or more. In cases of fraud, criminal penalties may apply. The IRS has specifically warned against ERC promoters who make unsupported claims. Uncle Kam conducts a thorough eligibility analysis before filing any ERC claim.
Due to the high volume of ERC claims and IRS processing backlogs, refunds have taken anywhere from 6 months to over 2 years. The IRS has been processing claims in the order received. Uncle Kam monitors the status of your refund and follows up with the IRS as needed.
Majority owners (more than 50% ownership) and their family members are generally excluded from qualified wages for ERC purposes. Minority owners may qualify depending on their family relationships. Uncle Kam carefully analyzes ownership structures to determine which employee wages qualify for the credit.
You need payroll records showing wages paid during eligible quarters, documentation of the government orders or revenue decline that created eligibility, records of health plan expenses, and PPP loan forgiveness documentation if applicable. Uncle Kam compiles and organizes all required documentation to support your ERC claim.
The IRS launched an ERC Voluntary Disclosure Program allowing businesses that received improper ERC payments to repay 80% of the credit (keeping 20%) without penalties or interest. This program has had limited enrollment windows. Uncle Kam advises clients who received questionable ERC payments on whether to participate in voluntary disclosure.
The Infrastructure Investment and Jobs Act retroactively eliminated the ERC for Q4 2021 for most businesses, except for Recovery Startup Businesses. If you already claimed Q4 2021 ERC credits (other than as a Recovery Startup), you may need to repay them. Uncle Kam reviews your Q4 2021 claims to ensure compliance.
The ERC and WOTC cannot both be claimed for the same wages — you must choose which credit to apply to each employee's wages. In most cases, the ERC provides a higher credit rate and is the better choice. Uncle Kam analyzes which credit maximizes your total tax savings for each employee.
ERC claims are complex and require specialized knowledge of the eligibility rules, qualified wage calculations, and interaction with PPP loans. Many general CPAs lack the specialized expertise to maximize ERC claims or properly document eligibility. Uncle Kam's tax advisors specialize in ERC claims and ensure you receive every dollar you are entitled to.
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