Let me be direct about where things stand: you can no longer file new Employee Retention Credit claims. The filing window officially closed on April 15, 2025, and the OBBBA further restricted eligibility for late-filed 2021 claims. But if your business already filed a claim — whether it’s been paid, denied, or is still sitting in the IRS backlog — this post is for you.
The ERC isn’t over. It’s just entered a new phase: enforcement, compliance, and cleanup. As of December 31, 2025, the IRS reported that 41,000 ERC claims remain in examination or appeal out of nearly 5 million total claims processed (GAO Report GAO-26-107456, February 2026). The agency has indicted over 1,000 individuals for alleged ERC fraud and sentenced 569 to an average of 31 months in federal prison.
If you claimed the ERC, the question isn’t whether you should pay attention — it’s whether your documentation can withstand the scrutiny that’s coming. Here’s what you need to know.
Key Takeaways
- The ERC filing window is permanently closed — no new claims can be filed as of April 15, 2025
- The OBBBA disallows unprocessed Q3/Q4 2021 claims filed after January 31, 2024 — and the IRS now has up to six years to audit ERC claims
- The total cost of ERC reached an estimated $302 billion — nearly 4x the original $78 billion projection (Penn Wharton, 2025)
- If you received ERC refunds but didn’t reduce your wage deduction, the IRS now allows you to report the adjustment in the year you received the refund — no amended prior returns required
What Was the Employee Retention Credit?
The ERC provided approximately $283 billion to employers as of June 2025, making it one of the largest business tax credits in U.S. history (GAO, 2026). Originally enacted under the CARES Act in March 2020 and expanded by the Consolidated Appropriations Act and the American Rescue Plan Act, the credit was designed to incentivize employers to keep workers on payroll during COVID-19 disruptions.
For eligible employers, the credit provided up to $5,000 per employee for 2020 (50% of up to $10,000 in qualified wages) and up to $7,000 per employee per quarter for the first three quarters of 2021 (70% of up to $10,000 in qualified wages per quarter) — a maximum of $26,000 per employee across the entire program.
Why Did the IRS Impose a Moratorium?
In September 2023, the IRS announced a moratorium on processing new ERC claims after a flood of potentially fraudulent submissions overwhelmed the system. Before the moratorium, claims were being processed in under 100 days. Afterward, the average processing time jumped to 390 days in 2024 and grew even longer in 2025 (Penn Wharton Budget Model, 2025). The IRS was taking time to carefully review each claim.
The problem was scale. By October 2024, the backlog had reached 1.2 million claims. Aggressive marketing by third-party ‘ERC mills’ convinced thousands of businesses to file claims they didn’t qualify for. Many of these promoters charged a percentage of the refund. IRS Criminal Investigation has since begun over 2,039 tax and money laundering cases related to COVID-19 relief, resulting in 1,028 indictments.
Where things stand now: The IRS reported it had closed most ERC claims by December 31, 2025, with 41,000 remaining in examination or appeal. The Taxpayer Advocate Service has noted that over 597,000 claims were still unprocessed as recently as April 2025, suggesting the bulk of closures happened in the second half of 2025.
What Did the OBBBA Change for ERC?
Legislative Update
The One Big Beautiful Bill Act, signed July 4, 2025, included significant ERC enforcement provisions that took effect immediately. The most impactful change: the OBBBA disallows unprocessed ERC claims for Q3 and Q4 of 2021 that were filed after January 31, 2024. If your 2021 claim was filed after that date and hasn’t been paid, it’s effectively dead.
OBBBA ERC Provisions — What Changed
Late 2021 claims disallowed
Unprocessed ERC claims for Q3/Q4 2021 filed after January 31, 2024 are no longer eligible for refund or credit — regardless of whether the underlying activities qualified.
Extended audit window
The IRS now has up to six years to audit and recapture ERC claims — significantly longer than the standard three-year statute of limitations.
Criminal enforcement continues
As of February 2025, IRS Criminal Investigation had initiated 2,039 cases and secured 1,028 indictments related to COVID-19 relief fraud, with Courts sentenced 569 individuals to an average of 31 months.
My Claim Was Paid — Am I in the Clear?
Not necessarily. Receiving a refund doesn’t mean the IRS has accepted the validity of your claim. With the six-year audit window now in effect, the IRS can examine and recapture ERC refunds well into 2027 or beyond for 2021 claims. The IRS can claw back refunds under misrepresentation or fraud theories, even years after payment.
If you received ERC refunds, here’s what you should be doing right now:
Your ERC compliance checklist
If you’ve already received ERC refunds:
| ✓ | Verify your eligibility independently. If a third-party promoter prepared your claim, have a qualified CPA or tax attorney re-review it from scratch. |
| ✓ | Address the wage deduction adjustment. The ERC reduces your deductible wage expenses for the year the qualified wages were paid. New IRS guidance (March 2025) lets you include the overstated deduction as income in the year you received the refund — no amended prior returns needed. |
| ✓ | Organize your documentation now. Keep eligibility analysis, government orders you relied on, gross receipts records, qualified wage calculations, and any correspondence from your preparer. If the IRS examines your claim, you’ll need this ready. |
| ✓ | Watch for IRS correspondence. Look for Letters CP2100, Letter 4523, or disallowance notices. Respond within the stated deadlines — silence is treated as agreement with the IRS’s position. |
| ✓ | Be cautious about “supply chain” arguments. The IRS has specifically warned that vague supply chain disruption claims often don’t meet the governmental order suspension test. If your eligibility was based primarily on supply chain impacts, get a second opinion. |
From our practice: The ERC claims we see most frequently challenged aren’t the obviously fraudulent ones — they’re the “gray area” claims where a legitimate business used a promoter who applied overly aggressive eligibility interpretations. Especially common: claiming full suspension when only a partial suspension occurred, or miscalculating the significant decline in gross receipts by using the wrong comparison quarters. If a promoter told you “every business qualifies,” that’s the first red flag to investigate.
What If My Claim Was Denied?
The IRS has issued disallowance letters for approximately 84,000 ERC returns as of late 2025. The Taxpayer Advocate Service has criticized the IRS for not clearly explaining the basis for many denials — leaving businesses unsure why they were rejected.
If you received a disallowance notice, you have options. You can request an administrative appeal through the IRS Independent Office of Appeals. In some cases, you may be able to take the matter to Tax Court or a federal district court. The key is acting within the response deadlines stated in the notice — missing them can forfeit your appeal rights.
Important: If your ERC claim was denied but you had already reduced your wage deduction on your income tax return, the March 2025 IRS guidance allows you to increase your wage expense on your current-year return to reverse the prior reduction. No amended return is needed. This is a significant simplification that many businesses haven’t acted on yet.
What If My Claim Is Still Pending?
If you filed a claim before the OBBBA cutoff dates and it’s still unprocessed, it should eventually be reviewed. But “eventually” is doing a lot of heavy lifting here — the IRS has been processing about 100,000 claims per month since April 2025, and the Taxpayer Advocate Service has urged the IRS to commit to clearing all claims by the end of 2025.
If your claim is pending and you’re no longer confident it meets eligibility requirements, you may still be able to withdraw it using the IRS withdrawal process. Withdrawing a claim you’re uncertain about is almost always better than waiting for the IRS to deny it — denial can trigger penalties and interest, while withdrawal treats the claim as if it was never filed.
The Wage Deduction Issue — What Most Businesses Miss
This is the compliance landmine that catches businesses off guard. When you claim the ERC, it reduces your deductible wage expenses for the tax year the qualified wages were paid. If you received ERC refunds for 2020 or 2021 wages but never adjusted your wage deduction on your income tax return, you have an unreported income issue.
This is a significant administrative relief. Before this guidance, businesses were expected to amend their 2020 or 2021 returns — which for many had already passed the statute of limitations. Now, you simply include the adjustment on your current-year return. But you need to actually do it. The IRS has signaled that failure to address this can result in accuracy-related penalties.
Don’t overlook this: The wage deduction adjustment applies even if your ERC claim is legitimate and fully defensible. It’s not a penalty — it’s a required coordination between your payroll tax credit and your income tax deduction. We’ve seen businesses that received six-figure ERC refunds but never made this adjustment, creating an equal-sized income tax exposure they don’t know about. If you received ERC in 2023 or 2024 for 2020-2021 wages and haven’t addressed the deduction, act now.
How to Protect Your Business Going Forward
The ERC has transitioned from a refund opportunity to a risk management issue. Whether your claim was paid, denied, or is still pending, here’s the practical framework:
Review Your Eligibility
Have a qualified professional — not the promoter who filed the claim — independently verify that your business met either the governmental order suspension test or the gross receipts decline test for each quarter claimed.
Fix the Income Tax Side
If you received ERC but haven’t adjusted your wage deduction, use the March 2025 IRS guidance to report the adjustment on your current-year return. Don’t wait for the IRS to find it.
Build Your Audit File
Compile government orders, gross receipts by quarter, qualified wage calculations, and the basis for eligibility. With a six-year audit window, you’ll want this accessible for years to come.
Need an Independent ERC Review?
If you’re unsure whether your ERC claim holds up under current IRS scrutiny, we’ll review your eligibility, documentation, and income tax coordination — and give you a clear picture of where you stand.
Frequently Asked Questions
Can I still file a new ERC claim in 2026?
No. The filing deadline for 2020 claims was April 15, 2024, and for 2021 claims was April 15, 2025. The OBBBA further disallows unprocessed Q3/Q4 2021 claims filed after January 31, 2024. No new claims can be submitted.
I received my ERC refund — can the IRS take it back?
Yes. The IRS now has up to six years to audit ERC claims, and refunds can be recaptured if the claim is found to be ineligible. IRS Criminal Investigation has initiated over 2,039 cases related to COVID-19 relief fraud as of February 2025.
Do I need to amend my income tax return after receiving ERC?
Not anymore, in most cases. The IRS’s March 2025 guidance allows you to report the wage deduction adjustment as income on the return for the year you received the refund, rather than amending the original 2020 or 2021 return. If your claim was denied after you reduced wages, you can reverse the reduction on your current-year return.
My claim was denied — what are my options?
You can request review by the IRS Independent Office of Appeals or pursue litigation in Tax Court or federal district court. The Taxpayer Advocate Service has advocated for clearer denial explanations and faster resolution. Act within the deadlines stated in your disallowance letter — delays can forfeit your rights.
I used an ERC promoter — should I be worried?
It depends on the quality of their work. The IRS has specifically warned about promoters who claimed “every business qualifies” or relied solely on vague supply chain arguments. Have an independent tax professional review your claim. If your eligibility is questionable, addressing it proactively is far better than waiting for an audit notice.
The Bottom Line
The Employee Retention Credit was a powerful program that provided real relief to businesses during an unprecedented crisis. But it also attracted unprecedented fraud — and the IRS enforcement response is still ramping up, not winding down.
If you claimed the ERC, take this seriously. Review your eligibility with fresh eyes. Fix the wage deduction coordination. Organize your documentation. And if anything doesn’t look right, address it now while you still have the option to act on your terms rather than the IRS’s.
At Tax Formulations, we help businesses navigate complex tax credit issues — from R&D tax credits to cost segregation to ERC compliance reviews. If you need a clear-eyed assessment of where your ERC claim stands, reach out for a consultation.
Martin Gamez
Founder, Tax Formulations
Martin is a tax credit specialist with over 25 years of experience in federal and state R&D tax credits, cost segregation, and business tax incentives. His background includes tenure at Big Four and Top 10 accounting firms, with clients spanning technology, manufacturing, aerospace, engineering, and life sciences. Read full bio →