If you’re a small business owner who navigated the chaos of pandemic-related shutdowns, supply chain snags, or plummeting customer demand, you’ve likely heard of the Employee Retention Credit (ERC) — a lifeline tax credit designed to keep your team on payroll. But one of the most common questions we hear is What Quarters Are Eligible for Erc, and it’s a make-or-break detail for claiming the full credit you deserve. Over the last few years, the IRS has updated ERC rules repeatedly, so even business owners who filed a few years ago might be unsure which 2020, 2021, or even 2022 quarters count toward their claim.
Many business owners waste hours sorting through every paycheck from 2020 and 2021, only to find they don’t qualify for most of those periods. This guide will cut through the confusion, break down every eligible quarter by year and business type, and share actionable steps to make sure you don’t miss out on the refund you’re owed. By the end, you’ll know exactly which quarters qualify, how to verify your eligibility for each, and avoid costly mistakes that could delay your tax refund.
The Core Eligible Quarter Timeline for ERC
If you’re new to ERC rules, the first thing to grasp is that eligibility is tied strictly to calendar quarters, not individual pay dates or months. Many business owners waste time sorting through every 2020 or 2021 paycheck, but the IRS only recognizes specific three-month blocks for claiming the credit. The exact eligible quarters depend on your business type, but the standard eligible window runs from Q3 2020 through Q2 2021, while recovery startup businesses can claim up through Q4 2021. Before diving into the specifics of each quarter, it’s important to note that the IRS no longer accepts ERC claims for quarters before Q3 2020, and the deadline to file amended returns for 2020 and 2021 quarters is July 31, 2024, for most taxpayers.
Now that we’ve covered the core eligible timeline, let’s dive into the specifics of each eligible quarter, starting with the first one ever added to the ERC program:
Q3 2020: The First Official ERC Eligible Quarter
Q3 2020 was the first quarter added to the ERC program via the CARES Act, signed into law in March 2020. This quarter runs from July 1 to September 30, 2020, and it was designed to help businesses that struggled during the early months of the pandemic. To qualify for Q3 2020 ERC, you had to meet one of two main criteria: either your business was fully or partially suspended by a government order related to COVID-19, or your gross receipts dropped by at least 50% compared to the same quarter in 2019.
The IRS has strict rules for documenting both eligibility criteria, so it’s important to keep detailed records of any government orders that affected your business, as well as your gross receipts reports from 2019 and 2020. Here are the exact requirements you need to meet to qualify for Q3 2020 ERC:
- You can show that a federal, state, or local government ordered your business to suspend operations, limit capacity, or implement COVID-19 safety protocols that reduced your revenue
- Your gross receipts for Q3 2020 were less than 50% of your gross receipts for Q3 2019
- You did not use the same wages to claim the Work Opportunity Tax Credit (WOTC) or other federal tax credits
According to the IRS’s 2023 annual report, over 40% of all ERC claims filed in 2022 included Q3 2020 eligible wages. This makes it one of the most widely claimed quarters, especially for small businesses in hard-hit industries like restaurants, retail, and entertainment. Even if you didn’t file an original tax return claiming ERC for this quarter, you can still file an amended return using Form 941-X before the July 31, 2024 deadline.
One common mistake business owners make with Q3 2020 ERC is assuming they don’t qualify because they didn’t close their doors entirely. Remember, partial suspensions or limited capacity orders still count, as long as they were issued by a government body. For example, a hair salon that was forced to operate at 50% capacity for most of Q3 2020 would still qualify for ERC, even if it never fully closed.
Next, let’s look at the final eligible quarter of 2020:
Q4 2020: Extending the Early ERC Eligibility Period
Q4 2020 runs from October 1 to December 31, 2020, and it follows nearly the same rules as Q3 2020, with one key difference: you’ll compare your gross receipts to Q4 2019 instead of Q3 2019. This quarter was added to the ERC program via the same CARES Act, and it was designed to help businesses that struggled during the holiday season, when many consumers stayed home due to COVID-19 concerns.
To make it easy to compare the rules for Q3 and Q4 2020, we’ve put together a quick reference table below:
| Eligibility Factor | Q3 2020 | Q4 2020 |
|---|---|---|
| Government Suspension Requirement | Required | Required |
| Gross Receipts Decline Threshold | 50% vs Q3 2019 | 50% vs Q4 2019 |
| Maximum Credit Per Employee | $5,000 total for all 2020 quarters | $5,000 total for all 2020 quarters |
The total maximum credit per employee for all 2020 eligible quarters is $5,000, so you can’t claim more than that combined across Q3 and Q4 2020. For example, if you claimed $3,000 in ERC for Q3 2020, you can only claim an additional $2,000 for Q4 2020 per employee.
Many businesses that qualified for Q3 2020 ERC also qualified for Q4 2020, but there were some businesses that only qualified for the final quarter of 2020. For example, a small retail store that opened in September 2020 wouldn’t have 2019 gross receipts to compare for Q3 2020, but they could compare their Q4 2020 gross receipts to Q4 2019 (if they had sales that quarter) to qualify for ERC.
The next major expansion of the ERC program added Q1 2021, and we’ll cover that next:
Q1 2021: Expanded ERC Eligibility Thanks to CAA 2021
The Consolidated Appropriations Act of 2021, passed in December 2020, made some of the biggest changes to the ERC program, including adding Q1 2021 (January 1 to March 31, 2021) as an eligible quarter. This act also relaxed many of the eligibility rules, making it easier for more businesses to claim the credit.
Here are the key changes that applied to Q1 2021 ERC eligibility, compared to 2020 quarters:
- The gross receipts decline threshold dropped from 50% to 20% for all 2021 eligible quarters
- Government orders related to COVID-19 testing, contact tracing, or health screenings now counted toward the suspension requirement
- Businesses that received a Paycheck Protection Program (PPP) loan could now claim ERC, as long as they didn’t use the same wages for both PPP forgiveness and ERC
- The maximum credit per employee per quarter jumped to $7,000, up from $5,000 total for all 2020 quarters
This expanded eligibility meant that thousands of businesses that didn’t qualify for 2020 ERC could now claim the credit for Q1 2021. For example, a small gym that only saw a 25% drop in gross receipts compared to Q1 2019 would now qualify, whereas they wouldn’t have met the 50% threshold for 2020 quarters.
It’s important to note that you can only claim ERC wages that were paid during the eligible quarter, not wages that were accrued but not paid. For Q1 2021, that means wages paid between January 1 and March 31, 2021, even if the wages were for work done in December 2020. Make sure you sort your payroll records carefully to avoid claiming wages for the wrong quarter.
Following closely behind Q1 2021 was Q2 2021, the most widely claimed ERC quarter of all time:
Q2 2021: The Peak ERC Eligible Quarter for Most Businesses
Q2 2021 runs from April 1 to June 30, 2021, and it was the most widely claimed ERC quarter of all time. According to the IRS, over 60% of all ERC claims filed in 2023 included Q2 2021 eligible wages, thanks to the relaxed eligibility rules and continued pandemic restrictions across the country.
Q2 2021 followed the same expanded rules as Q1 2021, with the 20% gross receipts decline threshold and the ability to claim ERC alongside PPP loans. The only major difference was that many businesses faced continued government restrictions during this quarter, as vaccine rollouts were still underway and local governments kept capacity limits in place.
Here are some of the most common scenarios that qualified businesses for Q2 2021 ERC:
- Restaurants and bars that were forced to operate at 50% capacity or offer only takeout service
- Movie theaters, bowling alleys, and other entertainment venues that were closed entirely
- Hair salons, nail spas, and other personal care businesses that had to close temporarily due to local health orders
- Any business that saw a 20% or greater drop in gross receipts compared to Q2 2019, even without a government shutdown
For businesses that qualified for both Q1 and Q2 2021, the total maximum credit per employee was $14,000 ($7,000 per quarter). That’s a significant amount of money, and it’s worth taking the time to verify your eligibility for this quarter, even if you didn’t claim ERC for earlier quarters.
For most businesses, Q3 and Q4 2021 are not eligible, but there’s a special exception for a narrow group of businesses:
Q3 and Q4 2021: Limited Eligibility for Recovery Startup Businesses Only
The American Rescue Plan Act of 2021, passed in March 2021, added a special exception for a new category of businesses called Recovery Startup Businesses (RSBs) that could claim ERC through Q4 2021 (October 1 to December 31, 2021). For most standard businesses, Q3 and Q4 2021 are not eligible ERC quarters, so this is a narrow group of businesses that qualify.
To qualify as a Recovery Startup Business, you must meet three key criteria: first, your business must have started operations after February 15, 2020; second, your average annual gross receipts for the tax year ending before the eligible quarter must be less than $1 million; and third, you must have faced a decline in gross receipts or a suspension of operations to qualify for the credit in a specific quarter.
Here’s a quick breakdown of the rules for Q3 and Q4 2021 ERC for RSBs:
- You can only claim the credit for wages paid between July 1, 2021, and December 31, 2021
- The maximum credit per employee per quarter is still $7,000, so you can claim up to $14,000 per employee for Q3 and Q4 2021 combined
- You must still meet either the gross receipts decline test or the government suspension test for each quarter
- You cannot claim ERC for any quarters before Q3 2020, even if you meet the RSB criteria
A common example of a Recovery Startup Business is a small coffee shop that opened in June 2020, or a boutique retail store that launched in August 2020. These businesses didn’t have 2019 gross receipts to compare for early pandemic quarters, but they can now claim ERC for the final two quarters of 2021 if they meet the other eligibility criteria.
Finally, let’s cover some common mistakes that can make even eligible quarters invalid for ERC claims:
Common Mistakes That Make Quarters Ineligible for ERC
Even if your business falls into one of the eligible quarter windows, there are several common mistakes that can make your ERC claim invalid. These mistakes can range from simple paperwork errors to misinterpreting IRS rules, and they can result in your claim being denied or delayed. Let’s break down the most common mistakes and how to avoid them.
Here’s a table of the most common ERC mistakes, which quarters they affect, and how to fix them:
| Mistake | Affected Quarters | Fix |
|---|---|---|
| Claiming wages used for PPP forgiveness | All eligible quarters | Use only wages not used for PPP forgiveness |
| Mismatching gross receipts to the wrong quarter | Q3 2020, Q4 2020, Q1 2021, Q2 2021 | Compare gross receipts to the same quarter in 2019 |
| Filing after the July 31, 2024 deadline | All 2020-2021 quarters | File amended returns before the deadline |
| Claiming wages for non-eligible employees | All eligible quarters | Only claim wages for employees who were on payroll during the eligible quarter |
One of the most common mistakes we see is business owners claiming ERC for quarters before Q3 2020. The IRS strictly enforces the eligible quarter timeline, and any claims for Q1 or Q2 2020 will be automatically denied. Even if your business struggled during the early months of the pandemic, you can’t claim ERC for those quarters.
Another common mistake is misinterpreting the gross receipts decline test for 2021 quarters. Remember, the 20% threshold applies to 2021 quarters, not the 50% threshold that applied to 2020 quarters. Many business owners mistakenly use the 50% threshold for Q1 or Q2 2021, which can result in their claim being denied. Double-check your gross receipts calculations to make sure you’re using the correct threshold for each quarter.
To wrap up, the eligible ERC quarters depend entirely on your business type and the eligibility rules in place at the time. For most small businesses, the eligible quarters run from Q3 2020 through Q2 2021, while recovery startup businesses can claim up through Q4 2021. The deadline to file amended returns for all eligible 2020 and 2021 quarters is July 31, 2024, so you have plenty of time to gather your records and file your claim if you haven’t already done so. Remember, you can only claim ERC for wages paid during the eligible quarter, and you can’t double-dip wages between PPP loans and ERC.
If you’re unsure