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Employee Retention Tax Credit

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The Latest Information on the ERTC

Updated March 27, 2023

IRS ERTC Backlog

As of March 27, 2023, the number of unprocessed Forms 941-X was approximately 844,000.

Write your Representatives and Senators on the ERTC backlog

As part of our months-long effort to push the IRS and Congress to do something about extreme delays in processing ERTC claims, NAPEO has begun a grassroots campaign that gives PEOs and their clients the opportunity to tell their members of Congress how the ERTC backlog is impacting their businesses.

We're asking all members to send this letter to your respective representative and senators asking them to tell the IRS to clear this backlog.

In addition, we encourage you to ask your clients that are waiting on ERTC refunds to be approved by the IRS to contact their senators and members of Congress about the impact of the ERTC delays on their businesses. You can use this sample email. This is a sampling of the dozens of testimonials we have received from PEO clients describing the impact of the ERTC backlog.

We will continue to hammer away on this issue and keep up the pressure until all PEO clients receive their ERTC funds.

You are also encouraged to join our member forum discussion group on the ERTC to engage with fellow members. For more information contact Thom Stohler. 


Member Resources: 

NAPEO Efforts on the ERTC

  • Ongoing – meetings with Members of Congress to ask them to put pressure on the IRS to clear out the backlog of ERTC filings.
  • March 17, 2023 – NAPEO issues a press release highlighting its campaign to clear the IRS’ growing tax credit backlog and the threats that inaction poses to small and mid-sized businesses across the country.
  • March 15, 2023 – letters to the House and Senate Small Business committees from NAPEO President and CEO Pat Cleary urging its members to put pressure on the IRS to clear out the backlog of ERTC claims.
  • March 9, 2023 – NAPEO begins a grassroots letter writing campaign to Congress urging members to put pressure on the IRS to clear out the background of ERTC claims. NAPEO members and their clients send hundreds of letters to federal lawmakers.
  • February 15, 2023 – NAPEO provides the staff of the Senate Finance Committee with background material and “questions for the record” on the ERTC for the confirmation hearing of Danny Werfel, the nominee to be the next Commissioner of the IRS. 
  • February 6, 2023 – letter to Congress from  NAPEO President and CEO Pat Cleary urging the House and Senate to put pressure on the IRS to clear out the backlog of ERTC claims.
  • December 5, 2022 – letter to IRS Counsel Rachel Levy urging that small businesses claiming the ERTC on Form 941-X should be subject to the same IRS level of review that is applied to other small businesses, regardless of whether the claim is reported on Schedule R by an aggregate filer, such as a PEO or CPEO.
  • May 17, 2022 – NAPEO members met with 35 representatives and Senators to discuss the problems with the IRS processing Form 941-X and the harm this delay is causing their small business clients.
  • April 27, 2022 – Meeting with House Ways and Means Oversight Subcommittee staff, to discuss ERTC delays and incorrect processing of tax credits taken by PEO clients.
  • April 26, 2022 –Meeting with Senate Finance Committee staff to discuss ERTC delays and incorrect processing of tax credits taken by PEO clients.
  • April 7, 2022 – letter to Sec. Yellen and Comm’r Rettig regarding 941/941-X delays, ERTC, and offsets.
  • May 7, 2021 – letter to IRS Counsels Rachel Levy and Janine Cook regarding 941-X, ERTC.
  • March 17, 2021 – letter to the Secretary of the Treasury Janet Yellen and the IRS Commissioner Charles Rettig from NAPEO and three other trade associations (American Payroll Association, U.S. Chamber of Commerce, and American Institute of CPAs) to put more resources into processing ERTC claims.
  • July 1, 2020 – letter to Carol Weiser and Vicki Judson following up to 5/29/2020 NAPEO email.

IRS Guidance:

Background
The ERTC was created by the CARES Act in March.  It was extended and modified by the Consolidated Appropriations Act of 2021. Here’s how that law modified the ERTC. 

  • Repeals the provision denying the ERTC to employers receiving a PPP loan.  Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.

  • Extends the ERTC to apply to wages paid before July 1, 2021 (instead of January 1, 2021).

  • Increases the credit percentage from 50 percent to 70 percent of applicable wages. 

  • Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).

  • The following language was added to the ERTC provisions that specifically addresses PEOs:
    Any forms, instructions, regulations, or guidance described in paragraph (2) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the customer.  [Emphasis added.]
    It is not clear whether this provision applies retroactively or just to new credits taken in 2021.

  • Makes the ERTC available if the business experienced a decline of at least 20 percent in gross receipts (instead of a 50 percent decline) as compared to the same calendar quarter in the prior year.

  • Modifies the small employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 of fewer employees).
The ERTC was modified again in March 2021 by the American Rescue Plan Act, which, among other changes, added the ERTC to the Internal Revenue Code (§ 3134) and extended it to Q3 and Q4 2021. As noted above, The Infrastructure Investment and Jobs Act (IIJA), which was signed into law on November 15, 2021, retroactively terminated the ERTC one quarter early for most employers so that the ERTC is generally not available with respect to wages paid on or after October 1, 2021. Employers that meet the definition of “recovery startup business” in Code § 3134, as amended by the IIJA, continue to be eligible to claim the ERTC for wages paid through December 31, 2021. 
 
Employers that are no longer eligible for the ERTC in Q4 2021 but that (1) received an advance payment of the ERTC for Q4 using Form 7200 and/or (2) reduced their payroll tax deposits earlier in Q4 in anticipation of claiming the ERTC for Q4 should review the guidance in Notice 2021-65 (see link above) for information regarding repayment of those amounts.    

The Infrastructure Investment and Jobs Act (Public Law 117-58) contains a provision that ends the Employee Retention Tax Credit (ERTC) at the end of the third quarter of 2021.  Most employers should not claim any ERTC on the Form 941 for Q4 2021, with one exception for a “recovery startup business.”  Employers that meet that definition could still claim the ERTC for Q4 2021 (if otherwise eligible).

Employers may continue to claim the ERTC for Q1-Q3 2021 if they are eligible.