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Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) was created for eligible businesses that kept employees on payroll during the COVID-19 pandemic.

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About the ERTC Backlog

  • As of December 9, 2023, the number of unprocessed Forms 941-X was approximately 1,057,000.
  • As of October 19, 2023, the IRS announced a new withdrawal process for taxpayers concerned about their outstanding claim’s validity.
  • As of April 19, 2023, following NAPEO’s grassroots campaign and questions for the record, IRS Commissioner Daniel Werfel tells the Senate Finance Committee that the agency will soon being processing 40,000 ERTC applications per week – double its current rate. Werfel says the backlog has been due in part to concerns of fraud in 941-X filings, and that the application is “extremely complicated” to process given it is a paper-based amended return across numerous years. “It’s a filing we’re going to be dealing with for years, but I think we’re going to make progress,” Werfel says.

Key Resources

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What is NAPEO Doing

Writing to Lawmakers

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Issuing Statements

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  • January 7, 2025 – NAPEO President and CEO Casey Clark is featured in a Tax Notes article about ongoing ERTC discussions as the application deadline soon approaches. In it, he notes that a retroactive filing deadline “would be catastrophic for a lot of companies.” 
  • August 16, 2024 – In an op-ed published in The Hill, NAPEO President and CEO Casey Clark called on the IRS to expeditiously process its identified low-risk claims, including those submitted by PEOs, which have already been subject to additional layers of scrutiny to ensure accuracy and eligibility,
  • May 22, 2024 – In an op-ed published in The Washington Times, NAPEO President and CEO Casey Clark says “we’ll continue to bang on the doors of Congress and the IRS” until the ERTC backlog is cleared. 
  • March 22, 2024 – NAPEO President and CEO Casey Clark is featured in PoliticoPro Morning Tax. “While those committing tax fraud should be prosecuted to the full extent of the law, legitimate claimants cannot continue to be held hostage to fraudulent ERTC claims. The IRS must expedite the processing of claims by law-abiding, tax-paying Americans,” he tells the publication. 
  • October 4, 2023 – NAPEO President and CEO Pat Cleary is featured in stories on the committee letter from both CNBC and the Washington Business Journal.
  • September 14, 2023 – The IRS announces that it will immediately pause new ERTC claims so it can focus on ridding its growing accumulation of fraudulent claims. NAPEO President and CEO Pat Cleary’s response to this announcement is featured in MarketWatch. 
  • September 5, 2023 – The IRS announces it will slow the processing of ERTC claims as it grapples with an influx of fraudulent claims. NAPEO President and CEO Pat Cleary’s response to this announcement is featured in the Wall Street Journal.
  • December 6, 2024 – A group of 11 New York lawmakers — led by Senate Majority Leader Chuck Schumer (D) and House Minority Leader Hakeem Jeffries — write the IRS urging for expedited ERTC claims processing and greater transparency in the program. In the letter, the Democratic leadership mentions the concerns of PEOs and PEO clients, and encourage the swift processing of PEO filings, as they have already been subject to additional layers of scrutiny to ensure accuracy and eligibility.
  • August 16, 2024 – Virginia Sens. Tim Kaine (D) and Mark Warner (D) write a letter to the IRS demanding greater transparency about the status of ERTC claims that continue to languish. NAPEO President and CEO Casey Clark writes the lawmakers thanking them for their joint letter.
  • October 3, 2023 – The House Ways and Means Committee sends a letter to IRS Commissioner Daniel Werfel demanding a plan from the agency on what is being done to clear the still-increasing backlog of ERTC claims following the September moratorium. NAPEO President and CEO Pat Cleary’s July testimony before the Ways and Means’ Oversight Subcommittee is featured prominently in the letter.
  • July 31, 2023 – NAPEO President and CEO Pat Cleary is featured by the House Ways and Means Committee for his compelling testimony before its Oversight Committee the week prior.
  • July 27, 2023 – NAPEO President and CEO Pat Cleary testifies before the House Ways and Means Oversight Subcommittee on the ERTC backlog’s harmful impacts on small and mid-size businesses. NAPEO issues a press release highlighting Pat’s testimony.
  • July 25, 2023 – NAPEO launches ertcdelayshurtsmallbiz.com to show the firsthand impact the ERTC backlog has on small and mid-size businesses.
  • June 22, 2023 – NAPEO survey of 43 members finds that 18,000 small business clients are still waiting for the IRS to approve at least $3 billion in ERTC credits filed before 2023.
  • March 23, 2023 – Following the grassroots efforts of NAPEO, our members, and their clients, ten Republican members of the House Ways & Means Committee sent this letter to the new IRS commissioner requesting an ERTC status update by April 3.
  • 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.
  • 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.

More ERTC Guidance

Provided by the IRS

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ERTC Background

The ERTC was created by the CARES Act in March 2020. It was extended and modified by the Consolidated Appropriations Act of 2021. Here’s how that law modified the ERTC.

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.