An Explanation of the IRS “Lookback Period” Rules

August 28, 2023
Dayes Law Firm

The Employment Retention Tax Credit (ERTC) provides relief to businesses that struggled in 2020 and 2021 due to the COVID-19 pandemic. Some employers aren’t aware they’re eligible for this credit because they don’t know about the ERTC lookback period. 

Tax professionals at Dayes Law Firm can explain the ERTC qualifications and help you retroactively claim this tax credit for your business if you qualify.

Changes to the ERTC in 2021 Made More Businesses Eligible

The CARES Act of 2020 introduced the ERTC. Through the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan of 2021, the ERTC became available to more employers. The Consolidated Appropriations Act also extended the ERTC through June 30, 2021.

The Infrastructure Investment and Jobs Act of 2021 then retroactively ended the ERTC for the final quarter of 2021. This Act allows startup recovery businesses to claim the ERTC for the fourth quarter of 2021, but many who were anticipating that credit lost it.

However, you can still claim the ERTC for 2020 and the first three quarters of 2021, thanks to the lookback period.

What Is the ERTC Lookback Period?

The ERTC lookback period allows businesses to file for the ERTC for up to three years after they filed their original tax return for that year. 

This lookback period gives businesses that may not have previously qualified for the ERTC, but now do, time to file for a tax refund. 

The ERTC ended on September 30, 2021, but you can still claim this tax credit for 2020 and 2021. 

Gather your records from 2020 and 2021 to determine if you’re eligible for the ERTC. If you believe you meet the qualifications, you can file retroactively by amending your Form 941 from the qualifying year. 

Qualifications Under the ERTC Lookback Period

The lookback period is only useful if you know what you’re looking back for and how to qualify for the ERTC.

Eligible employers can collect up to $10,000 per employee for qualified wages in 2020, and $10,000 per employee per quarter for qualified wages in 2021. 

You can claim the ERTC if you experienced a complete or partial shutdown of operations in either 2020 or 2021. In 2020, you can claim the ERTC if you lost 50% of your gross revenue. You must have lost 20% of your gross revenue in 2021 compared to 2019 to claim the employee retention tax credit.

Form 941 Lookback Period

IRS Form 941 documents the federal income tax you withheld from employees. As a business owner, you file it by calendar quarters. The lookback period for Form 941 is 12 months, ending on June 30 of the following year.

The records from those 12 months will determine how you deposit your tax liability and how often you make them — on either a monthly or semi-weekly basis. 

If you reported less than $50,000 during the lookback period, you’ll make deposits monthly. If you reported more than $50,000, you will make deposits on a semi-weekly basis. Further, if you collect $100,000 or more in taxes on any given day, you must deposit it the next day.

Form 941-X is a quarterly federal tax return or claim for refund that is used to amend your previously filed Form 941. This is what a business needs to use to file for a retroactive ERTC claim.

Contact a Tax Attorney with Dayes Law Firm for Help With the ERTC

If you have more questions about the ERTC lookback period and how to use it to your advantage, contact our team at Dayes Law Firm. Our attorneys have decades of experience and have helped hundreds of businesses claim the ERTC.

Contact (800) 503-2000 to schedule a free consultation today.