With the expansion of the Employee Retention Credit (ERC), there has been a flurry of amended returns for companies that previously were unaware of the credit or were ineligible under the initial statute. As more and more companies become educated on the credit and their eligibility, there has been confusion over the timeline to submit ERC claims.

Mechanics of Filing ERC

The ERC is a refundable credit against 2020 and 2021 payroll taxes. It was created as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and expanded by the Consolidated Appropriations Act (CAA) and American Rescue Plan Act (ARPA). ERC is claimed on an employer’s amended quarterly or annual federal employment tax return, generally either Form 941-X (quarterly) or Form 944-X (annually).

Statute of Limitations

As with all tax returns, there is a set time period (or statute of limitations) regarding how long a taxpayer has to amend a previously filed return to claim a refund as well as the date by which the IRS must review the return and assess any additional tax liability.

For federal tax returns, generally the three-year statute of limitations under 26 U.S. Code § 6501 applies. This means that a taxpayer and the IRS have three years from the date the return was filed or from the date the return was deemed filed to submit an amendment or adjustment. The three-year statute of limitations is applicable to payroll tax withholdings reported on Forms 941, 944, as well as amended Forms 941-X.

However, unlike federal income tax returns, where the statute runs from the date of filing, pursuant to IRC Sections 6501(b)(2) and 6513(c), the statute of limitations for employment taxes does not begin until April 15th of the following calendar year. IRC §6513(c)(2) specifically addresses payment of social security taxes and income tax withholding:

“if a tax with respect to remuneration or other amount paid during any period ending with or within a calendar year is paid before April 15 of the succeeding calendar year, such shall be considered paid on April 15 of such succeeding calendar year.”

For example, the three-year statute of limitations for all four 2020 Forms 941 did not start until April 15, 2021. The IRS has until April 15, 2024, to review and propose adjustments, and taxpayers have until the same date to file amended forms to claim a refund.

The one exception to this rule is that as a result of Section 9651 of the ARPA, as codified in 26 U.S. Code § 3134(l), the statute of limitations on assessments by the IRS for Q3 and Q4 2021 has been extended to five years instead of three:

“Notwithstanding section 6501, the limitation on the time period for assessment of any amount attributable to [an ERC] will not expire before the date that is 5 years after the later of (i) the date on which the original return that includes the calendar quarter with respect to which the credit is determined is filed, or (ii) the date on which the return is treated as filed…”

This adjustment means that the Q3 and Q4 amended Forms 941-X can be reviewed until April 15, 2027.

Deadlines for Filing Amended Returns

The table below summarizes the statute of limitations for each tax period with the potential for ERC eligibility, assuming that the returns and taxes were timely submitted. If amended returns are not filed by the deadlines listed in the middle column, then the benefit is lost.

*If a taxpayer filed a Form 941 or 944 for either year after April 15 of the succeeding year, the deadline for filing an amended return to claim ERC is 2 years from the date the tax was paid, if later than the deadlines referenced above.

While there is still time for taxpayers to claim the ERC, now is a perfect time to consult a tax specialist for additional information regarding qualification for the credit.