ERC Tax Credit: Who Qualified, What the IRS Is Doing Now, and How to Fix a Bad Claim

Two tests, and you needed to clear one of them for each quarter you claimed. Either your gross receipts fell far enough against the same quarter in 2019, or a governmental order suspended your operations fully or partially for more than a nominal portion of the business. Everything else, revenue you lost, staff you struggled to hire, prices that rose, customers who stayed home, was not, by itself, eligibility.

The gross receipts test is the objective one and it is where most valid claims live. For 2020 quarters, a quarter qualified if gross receipts were less than 50% of the same quarter in 2019, and eligibility continued through the quarter following the first quarter in which receipts exceeded 80% of the comparison quarter. For the first three quarters of 2021 the threshold loosened to less than 80% of the same 2019 quarter, and employers could elect to use the immediately preceding quarter as the measuring stick instead. The IRS lays out both in Notice 2021-20 and Notice 2021-23.

Gross receipts means total receipts, not profit, and the aggregation rules matter enormously. Sections 52(a), 52(b), 414(m), and 414(o) of the Code treat commonly controlled entities as a single employer. An owner with a restaurant that collapsed and a construction company that boomed tests them together, not separately. Claims prepared entity by entity without running the controlled-group analysis are among the most common defects the IRS finds, and the employer usually had no idea the rule existed because nobody mentioned it.

The suspension test is where the abuse concentrated. It required an order from an appropriate governmental authority that limited commerce, travel, or group meetings because of COVID-19, that applied to the employer’s own operations, in the jurisdiction where the employer operated, during the quarter claimed. Guidance, recommendations, advisories, industry best practices, and a customer’s internal policy do not count. And a partial suspension had to be more than nominal, with Notice 2021-20 setting a safe harbor at 10% of gross receipts or 10% of total employee service hours attributable to the suspended portion.

Employer size then determined which wages counted, and this trips people up because it works the opposite of intuition. For 2020, an employer that averaged more than 100 full-time employees in 2019 could count only wages paid to employees who were not providing services. For 2021 quarters the threshold was 500. So a 300-employee company in 2020 that kept everyone working through an eligible quarter had almost no qualified wages, while the same company in 2021 could count all wages. Promoters routinely applied the small-employer rule to large employers, producing claims that fail on arithmetic alone.

Several wage categories never qualified. Wages already used for PPP loan forgiveness cannot also generate an ERC. Neither can payroll costs tied to shuttered venue operator grants or restaurant revitalization grants. Wages paid to a majority owner and to that owner’s spouse are generally not qualified where the owner has certain living family members, a rule the IRS set out in Notice 2021-49 and one that alone invalidates a meaningful share of small-company claims prepared by mills. Wages counted for the work opportunity credit or certain other credits are also off limits.

Worked example. A 22-employee dental practice in Queens claimed the ERC tax credit for Q2 2020 through Q3 2021, six quarters, on a promoter’s memo citing state emergency orders. Test the file properly. Q2 2020: the practice was closed to routine care by order for most of the quarter and receipts were 31% of Q2 2019. Both tests are met, and the claim is clean. Q3 2020: receipts recovered to 78% of Q3 2019, under the 80% continuation threshold, so eligibility continues into Q4 under the 2020 rule. Q1 2021: receipts were 84% of Q1 2019, above the 80% line, and no order restricted operations, so that quarter fails. Q2 and Q3 2021: receipts at 95% and 103%, no order, both fail. The owner’s own wages, as a sole shareholder with living children, were not qualified wages in any quarter. Of a $268,000 claim, roughly $150,000 was supportable and $118,000 was not. That is a very typical shape: not fraud from top to bottom, but a real credit inflated by quarters that never qualified.

Two smaller categories are worth naming because they are legitimate and often missed. A recovery startup business, one that began carrying on a trade or business after February 15, 2020 with average annual gross receipts of $1 million or less, could claim the credit for the third and fourth quarters of 2021 without meeting either the receipts test or the suspension test, capped at $50,000 per quarter. And tax-exempt organizations were eligible employers on the same terms as businesses, which surprised a number of nonprofits that assumed a credit against employment taxes could not apply to them. Both categories had real claims; neither was a loophole.

Governmental employers were a different story. Federal, state, and local government entities were generally excluded, with narrow exceptions added later for certain public colleges, universities, and medical care providers. Self-employed individuals could not claim the credit for their own self-employment earnings, though a self-employed person with employees could claim it on those employees’ wages. The credit was always about wages paid to somebody else.

The common mistake is treating eligibility as an annual determination. It is not. It is quarter by quarter, and each quarter needs its own gross receipts comparison or its own named governmental order with its own more-than-nominal analysis. A claim that covers five or six consecutive quarters with a single justification is the pattern the IRS audits first, because the pandemic did not affect every quarter of 2020 and 2021 the same way for anybody.

A second mistake is confusing hardship with eligibility. Businesses genuinely suffered for reasons the ERC never covered: labor shortages, cost inflation, customers who changed habits, supply delays with no order behind them. Real damage does not create a statutory credit. The IRS built a plain-language eligibility checklist precisely because so many employers reached the wrong conclusion sincerely.

If you claimed and are unsure, the useful exercise is to rebuild the file yourself: pull quarterly gross receipts for 2019, 2020, and 2021 from your own books, list every entity under common control, identify by name and date any order that applied to you, and quantify the suspended portion. That takes a day and tells you where you stand. Going forward, the employers in the best position are the ones who documented eligibility contemporaneously rather than accepting a promoter’s conclusion, because the IRS examination cycle for these claims runs years past the filing date and memories do not hold up. Our tax strategy team runs that rebuild as a fixed-scope review, and knowing the answer before the IRS does is worth considerably more than hoping.

No, you cannot still claim it. Yes, the IRS is still working through claims already filed. Those two facts together describe the entire state of the ERC tax credit in 2026, and confusing them is how people are still being sold services that cannot produce a refund.

The claim deadlines were statutory refund deadlines, not administrative preferences. The IRS states them in its ERC frequently asked questions: generally April 15, 2024 for 2020 tax periods, and April 15, 2025 for 2021 tax periods. Those dates came from the ordinary period for filing a claim for refund on an employment tax return, and both have passed. There is no extension request, no reasonable-cause exception, and no late-filing procedure. An amended Form 941-X claiming the credit filed today for any 2020 or 2021 quarter will not produce a refund.

For the third and fourth quarters of 2021 the door closed even earlier. Legislation enacted in 2025 disallowed credits for those quarters claimed on returns filed after January 31, 2024, and extended the period during which the IRS may assess tax attributable to those quarters. That combination is unusual and worth understanding: employers who filed late for Q3 2021 lost the credit retroactively, and employers who were paid on those quarters face a longer window in which the IRS can come back and examine them.

So if anyone contacts you in 2026 offering to “check whether you left ERC money on the table” or to file a claim for you, the answer is that there is no claim left to file. What that outreach usually is, at best, is a fee for a memo about a refund you cannot receive, and at worst an identity or data harvest. The IRS keeps a standing warning about ERC promoters on its ERC page.

What remains very much alive is the back end of the program. The IRS publishes a monthly inventory of remaining claims on that same page, broken into claims under review, claims pending payment or disallowance, claims under audit, claims awaiting review of disallowance responses, and claims sitting with the Independent Office of Appeals. As of the week ending May 30, 2026 the agency reported roughly 20,600 claims still in those stages. If you filed years ago and have heard nothing, you are in that inventory.

Three things can still happen to a filed claim. It can be paid, with interest, which is taxable income to you in the year received. It can be disallowed in whole or in part, arriving as Letter 105-C or Letter 106-C with appeal rights and short response deadlines, explained in the IRS Letter 105-C guidance. Or it can be selected for examination, which is a full audit of your eligibility, your payroll records, and your gross receipts by quarter.

You also retain one affirmative option. If your claim has not been paid, or if you were issued a refund check you have not cashed or deposited, you can withdraw it. A withdrawn claim is treated as though it was never filed, which means no repayment obligation, no interest, and no penalty on that claim. The process is on the IRS withdrawal page. Both Voluntary Disclosure Programs, the 80% repayment round that ran into March 2024 and the 85% round that ran into November 2024, are closed.

Worked example. A landscaping company with 30 employees filed six Forms 941-X in October 2023 claiming $310,000 across 2020 and 2021, prepared by a promoter that took 20% contingent on receipt. Nothing was paid before the September 2023 moratorium took effect, so the claim sat. In late 2025 the owner reviewed the file with a CPA and found that no governmental order was ever identified for four of the six quarters and that receipts in those quarters exceeded 90% of 2019. Because no money had been paid, the company withdrew the entire claim. Total cost: the preparer’s engagement fee, which was modest because the contingent portion never triggered, plus the CPA review. Had those refunds been paid and spent, the company would instead be facing repayment of the unsupported portion, interest from the payment dates, and a possible 20% erroneous-refund penalty under IRC section 6676. The withdrawal option is a genuinely valuable thing to still have, and it evaporates the moment you deposit the check.

Interest deserves a note of its own, because it cuts both directions and employers rarely plan for either. On a claim the IRS eventually allows, the agency pays interest from a statutory date, and that interest is ordinary income to you in the year you receive it, a $240,000 refund that arrives with $31,000 of interest attached produces a taxable item nobody budgeted for. On a claim the IRS later determines was erroneous, interest runs on the repayment from the date the refund was issued, which by 2026 can be three years of compounding on money that was spent long ago. The IRS publishes its quarterly rates on its interest page, and they have not been low.

The common mistake right now is doing nothing while a questionable claim sits unpaid. Waiting does not improve the position. If the claim is weak and unpaid, withdrawal is available today and will not be available after payment. If the claim is strong, waiting is fine but you should have the substantiation assembled before an examination notice arrives rather than after, because the response windows in IRS correspondence are measured in weeks.

A second mistake is assuming a disallowance is final. It is not. Letter 105-C carries the right to an administrative appeal, review by the Independent Office of Appeals, or a refund suit in the appropriate court, and the IRS has reversed disallowances where employers produced the documentation the original claim lacked. Missing the response deadline is what makes a disallowance final, and those deadlines are unforgiving.

Looking ahead, the ERC will be an audit topic for years after the last claim is paid, particularly for the 2021 quarters where the assessment window was extended. Keep your payroll registers, quarterly gross receipts schedules, PPP forgiveness records, controlled-group analysis, and any governmental orders you relied on, and keep them accessible rather than in a former preparer’s portal. If your promoter has disappeared, reconstruct the file now while your own records are still complete. Our payroll compliance team handles that reconstruction and the correspondence that follows, and the employers who fare best are the ones who assembled the file before they had to.

Read your own file. The tell is almost never in how the promoter talked to you; it is in what they produced. A defensible ERC tax credit claim contains a quarter-by-quarter gross receipts schedule tied to your books, a named governmental order with a citation and effective dates if you claimed on suspension, a more-than-nominal analysis quantified against the 10% safe harbor, a controlled-group determination, a PPP wage reconciliation, and payroll registers supporting every dollar of qualified wages. A mill file contains a cover letter, a number, and an invoice.

The IRS published its own list of warning signs, and it maps closely to what the industry actually did. Unsolicited calls, texts, emails, and mailers designed to look like government notices. A claim that eligibility can be determined in minutes. Large upfront fees. Fees set as a percentage of the refund. Pressure to accept a refund anticipation loan against the claim. A determination that you qualify made before anyone reviewed your tax situation. And the line that should end the conversation: “every business qualifies.” Those are on the IRS Employee Retention Credit page, and the agency built Publication 5887 as a printable checklist for exactly this review.

Six questions will tell you most of what you need to know. First, does the memo name a specific order, a governor’s executive order number, a city health department order, a state agency directive, with dates, or does it describe conditions? Second, did anyone request your 2019 quarterly gross receipts before quoting your refund? Third, does the file address related entities under common control? Fourth, does it exclude wages used for PPP forgiveness? Fifth, does it exclude majority-owner wages where the owner has living family members within the categories in Notice 2021-49? Sixth, is the preparer’s name and PTIN on the signature line of the filed Form 941-X?

That last one carries real weight. Many promoters deliberately left the paid preparer section blank so the returns appear self-prepared. That was not an oversight. It leaves you as the only party the IRS can pursue, and it makes reasonable-cause arguments harder, because you cannot easily claim you relied on a professional whose name appears nowhere on the return. If your 941-X filings are unsigned by any preparer and you did not prepare them, that is a meaningful fact about the firm you hired.

Worked example. A 60-employee staffing agency was told it qualified for $840,000. The engagement letter set the fee at 25% of refunds, payable on receipt, with no fee if no refund. The eligibility memo ran two pages and cited “government-mandated restrictions and supply chain interruptions affecting the client’s industry,” naming no order. The company’s gross receipts were 92%, 101%, and 108% of the corresponding 2019 quarters in the three 2021 quarters claimed. Its 2019 average full-time headcount was 71, which for the 2020 quarters restricted qualified wages to employees not providing services, and the workpapers counted all wages. Its two affiliated entities were never tested together. Every one of those is a defect an examiner finds in the first hour, and the fee was $210,000 for a claim built on none of the required analysis. When the disallowance came, the promoter’s phone number was disconnected.

There is a second tier of tell that shows up in the numbers themselves. Mill claims tend to be suspiciously round, to cover every available quarter rather than the ones that actually qualified, and to hit the statutory maximum per employee across the board. Real eligibility is lumpy: one terrible quarter, one borderline quarter, three that do not qualify. A claim that maxes out $7,000 per employee for Q1, Q2, and Q3 of 2021 across your entire headcount is describing a business that was almost completely shut down for nine straight months in 2021. Very few were. If your own memory of those quarters does not match the claim’s premise, trust your memory.

Watch for boilerplate as well. Promoters produced eligibility memos at scale, which means the same paragraphs appear in thousands of files with the client name swapped. If your memo describes an industry you are only adjacent to, references a state you do not operate in, or discusses restrictions that never applied to your business type, you are holding a template. Examiners have seen the same template hundreds of times and recognize it immediately.

The common mistake is assuming that receiving the refund settled the question. Payment is not approval. The IRS pays many claims without substantive review and examines them later, and the assessment window for the 2021 quarters was extended by legislation in 2025, which means claims paid in 2023 and 2024 remain examinable well into the future. Money in the bank for two years does not mean the credit was earned.

The second mistake is a variation on the first: spending it. Employers who received large ERC refunds and immediately deployed them into equipment, distributions, or debt paydown have no cushion if the credit is later disallowed, and disallowance brings repayment plus interest from the payment date plus a possible 20% penalty under IRC section 6676 for an erroneous refund claim. If your claim has soft spots and the money is sitting in an account, leaving a reserve there is not paranoia.

What can you actually do if you conclude the claim was bad? If the refund has not been paid, or the check has not been cashed or deposited, withdraw the claim using the IRS withdrawal process. The claim is treated as never filed. If the money was paid and spent, both Voluntary Disclosure Programs have closed, so the path is an amended employment tax return correcting the credit, repayment, and a penalty relief request supported by whatever reasonable-cause facts you have. Doing that on your own initiative is a materially better posture than waiting for an examination notice.

Report the promoter if the conduct warrants it. The IRS asks taxpayers to report abusive ERC schemes and preparers who knowingly filed incorrect returns, with the reporting steps set out in the scams section of its ERC FAQs. That does not resolve your own liability, but it matters, and in some cases the documentation you assemble to report supports your own reasonable-cause position.

Going forward, treat contingency-fee tax credit work with the skepticism it earned. Any pitch that prices a professional service as a share of a government refund creates an incentive to maximize the refund rather than to get the answer right, and the ERC was the largest demonstration of that in modern tax administration. The next credit will be marketed the same way. Ask for the analysis before the invoice. Our corporate returns team reviews ERC files on a fixed fee precisely so the conclusion is not attached to the size of the number.

You get a letter, you get a deadline, and you get rights, in that order, and the deadline is the part people miss. A full disallowance arrives as Letter 105-C. A partial disallowance arrives as Letter 106-C. Both explain why the IRS rejected the ERC tax credit and both tell you what you can do about it, and the IRS walks through the options in Understanding Letter 105-C.

A disallowance is not the end. You have three paths. You can respond directly to the IRS with the documentation the original claim lacked and ask for reconsideration. You can request review by the Independent Office of Appeals, which is separate from the examination function and reaches its own conclusion. Or you can file suit, a refund suit in the United States District Court or the Court of Federal Claims, generally within two years of the date of the notice of disallowance. Each path has its own clock, and the two-year litigation window is the one that quietly forecloses options if you let it run.

Common reasons for disallowance are predictable. The claim named no governmental order. Gross receipts did not decline enough in the claimed quarter. The employer exceeded the full-time employee threshold and counted wages of employees who were working. Wages were already used for PPP forgiveness. Majority-owner wages were included. The entity was not in existence during the claimed period. The Forms W-2 were never filed. The IRS will not process an ERC claim filed after Forms W-2 were due if you did not file them. Or the claim simply arrived after the filing deadline.

An examination is a different animal from a disallowance letter. An ERC audit typically requests quarterly payroll registers, Forms 941 as originally filed, the Forms 941-X and their workpapers, gross receipts by quarter for 2019 through 2021 tied to filed income tax returns, PPP loan and forgiveness documentation with the wage allocation, the governmental orders relied upon, an organizational chart showing related entities, and the engagement letter and correspondence with whoever prepared the claim. That last item surprises employers. The IRS wants to know who told you that you qualified and what they were paid.

Worked example. A 45-employee manufacturer received $520,000 in ERC refunds across 2020 and 2021 and is examined in 2026. The examiner concludes that Q2 and Q3 2020 were supportable, receipts at 44% and 61% of the 2019 comparison quarters, but that the three 2021 quarters, claimed on a supply chain theory with no order named and receipts above 90% of 2019, were not. Sustained credit: $185,000. Disallowed: $335,000. The company repays $335,000 plus interest running from the 2023 payment dates, which at prevailing rates adds materially to the bill. The examiner also asserts the 20% erroneous refund penalty under IRC section 6676, or $67,000, and the company contests it on reasonable-cause grounds. It relied on a firm holding itself out as a specialist, though the firm never signed the return, which weakens the argument. Meanwhile, the company must revisit its 2020 and 2021 income tax returns, because the wage deduction reduction it took for the disallowed portion now needs to be reversed.

The common mistake is missing the response deadline in the letter. Those windows are short, often 30 days for an initial response, and blowing one converts a contestable position into a final assessment that then moves into collection. If a letter arrives and your CPA cannot look at it this week, respond to preserve the deadline while the substantive review happens. A timely holding response is far better than a perfect late one.

The second mistake is responding with argument instead of documents. Examiners are working from a checklist. A three-page letter explaining how hard 2020 was does nothing; a spreadsheet of quarterly gross receipts tied to filed returns, plus a copy of the executive order with the relevant paragraph marked, plus a calculation of the suspended portion against the 10% safe harbor in Notice 2021-20, moves the file. Bring evidence, not narrative.

Penalty relief is worth pursuing where the facts support it. The IRS has acknowledged penalty relief in connection with ERC claims, and reasonable cause turns on what you knew, who you relied on, and whether that reliance was reasonable, which depends on the professional’s credentials, whether they had your actual facts, and whether they signed the return. Assemble that record early. The IRS notes the availability of relief in the income tax section of its ERC FAQs.

Do not overlook the collection side. If a repayment is assessed and you cannot pay it at once, installment agreements and other collection alternatives exist, and engaging early generally produces better terms than waiting for enforced collection. Employment tax liabilities also carry trust fund considerations for the individuals responsible for the payroll function, which is a separate and more serious exposure than an ordinary income tax balance.

One structural point about timing. The assessment period for employment taxes is normally three years, but the American Rescue Plan version of the credit at IRC section 3134 carried a five-year assessment window for the 2021 quarters, and 2025 legislation extended it further for the third and fourth quarters of 2021. Practically, that means a credit paid in 2023 can be examined well past the point where an ordinary income tax year would have closed. Employers who assumed the file was cold are the ones most surprised by a 2026 notice.

Looking forward, that extended window means these examinations will keep opening for years. Keep the complete file, payroll, receipts, orders, PPP allocation, controlled-group analysis, and the promoter correspondence, organized and retrievable, and do not let it live only in a vendor portal you may lose access to. If a letter arrives, treat the date on it as the most important number on the page. Our payroll compliance team handles ERC examinations and disallowance responses, and the single biggest predictor of a good outcome is how fast the response started.

In the standard case, yes. The ERC is a credit against employment taxes, and IRC section 280C(a) does not let you take a credit and a deduction on the same wages. The credit reduces your allowable wage expense for the tax year in which the qualified wages were paid or incurred, not the year the refund landed, which for most employers means going back to the 2020 or 2021 income tax return and reducing the wage deduction there.

The IRS says so directly on its Employee Retention Credit page: if you file Form 941-X to claim the credit, you must reduce your wage deduction by the amount of the credit for that same tax period, and you may need to amend Form 1040, 1065, 1120, or 1120-S to reflect it. The underlying authority is Notice 2021-20, questions 60 and 61 in section III.L, and Notice 2021-49, section IV.C, which addresses the timing of the disallowance.

Why the year the wages were paid rather than the year the money arrived? Because a taxpayer generally cannot deduct an expense when they have a right or reasonable expectation of reimbursement at the time it was incurred. An eligible employer had that expectation for the wage expense equal to the credit, so the deduction was never properly taken in the first place. That reasoning is why a refund received in 2024 reaches back into a 2021 return.

The cost of this is routinely underestimated by the people selling the credit. A $300,000 ERC tax credit reduces 2021 wage expense by $300,000. Push that through an S corporation to shareholders sitting at a combined federal and New York marginal rate near 40% and you have roughly $120,000 of additional income tax at the owner level, plus interest running from the original 2021 due date because the amended return is filed years late. The credit is still worth having. It is worth about 60 cents on the dollar, not 100, and a promoter quoting the gross figure as your benefit was quoting the wrong number.

The IRS has since described a simpler path for two specific fact patterns, in the income tax section of its ERC frequently asked questions. First: you claimed the credit, you never reduced your wage expense, and the claim was later allowed and paid in a subsequent year. In that case you are not required to file an amended return or an administrative adjustment request. You can instead include the overstated wage expense amount in gross income on the return for the year in which you received the ERC, under the tax benefit rule. The IRS gives the example of a business that claimed $700 based on $1,000 of 2021 qualified wages, did not reduce its 2021 wage expense, and was paid in 2024. It includes the $700 in gross income on its 2024 return rather than amending 2021.

Second: you did reduce your wage expense and the claim was subsequently disallowed. You are then out the deduction for a credit you never received, and the FAQs describe how to correct that. Employers in this position should not simply let the reduced deduction stand.

Worked example with the full arithmetic. A partnership with $2.4 million of 2021 wages receives a $410,000 ERC tax credit in 2024 and never reduced its 2021 wage deduction. Under the standard rule it would amend the 2021 Form 1065, reduce wages to $1.99 million, issue amended Schedules K-1, and each partner would amend a 2021 Form 1040 and pay tax plus interest from April 2022. Under the FAQ approach it instead reports $410,000 of additional gross income on the 2024 Form 1065, flowing to the partners on their 2024 K-1s. Same dollars of income, no amended partnership return, no amended personal returns, no four years of interest. For a partnership with eleven partners, that difference is thousands of dollars of preparation cost and a meaningful interest saving. Which approach fits depends on your facts, including whether wages were capitalized into inventory or asset basis rather than deducted, in which case the adjustment is a basis or depreciation change rather than a gross income pickup.

The common mistake is doing nothing at all. A large number of employers took the ERC refund, spent it, and never touched the income tax side, and the resulting returns claim both a credit and a full wage deduction on the same wages. That is a double benefit the Code does not allow, and it is discoverable. The IRS knows which employers were paid ERC refunds and knows what those employers deducted. Fixing it voluntarily, whether by amending or by the gross income approach, is far better than having it adjusted for you with penalties attached. Penalty relief may be available in some circumstances, and the IRS has acknowledged relief in connection with ERC claims.

One timing trap deserves its own mention. If you plan to amend the original year rather than use the gross income approach, check whether the statute of limitations for a refund on that year is still open before you assume the adjustment is symmetrical. Reducing a deduction increases tax and the IRS will accept that filing at any time. But if the same amendment would generate an offsetting refund elsewhere, a carryback, a credit released by the change, a partner-level item. That refund can be time-barred even though the additional tax is not. The adjustment runs one way and the benefit does not always follow it back.

The second mistake is forgetting the state return. If your state conforms to federal taxable income, the reduced wage deduction flows automatically and an amended federal return may require an amended state return. If your state decouples from specific federal provisions, the treatment may differ. New York filers should check the rules for the affected year rather than assuming conformity, and multi-state employers should check each state separately. A federal fix that leaves three state returns inconsistent is a half-finished job.

Going forward, the practical sequence is: determine the sustained credit amount by quarter, decide whether the amended-return route or the gross income route applies to your facts, model the after-tax result including interest before choosing, then handle federal and state together in one pass. Do not start amending until the employment tax side is final, because amending an income tax return for a credit that is later disallowed creates a second correction. Our corporate returns team sequences these adjustments for ERC recipients so the entity, the owners, and the states all land in the same place.