The IRS has offered some guidance on the Employee Retention Credit in the way of FAQs.
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Taxpayers and tax practitioners assumed that the One Big Beautiful Bill Act (OBBBA) would address some unanswered questions related to the controversial Employee Retention Credit (ERC) program—and it did. The IRS has now issued FAQs to help taxpayers understand how the OBBBA provisions affect ERC claims and refunds.
Here’s what you need to know.
What is the ERC Program?
The ERC program was intended as a way to help businesses keep the lights on during the pandemic. Under the ERC program, eligible employers included those that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Typically, to qualify, a business needed to demonstrate that a government order shut the business down due to the pandemic during 2020 or the first three calendar quarters of 2021, or that the business experienced a specific decline in gross receipts during the relevant periods in 2020 or the first three calendar quarters of 2021. Some businesses may also qualify as recovery startup businesses for the third or fourth quarters of 2021.
The amount of the credit was significant: 50% of up to $10,000 in wages, meaning it can be as high as $5,000 per employee in 2020 and as high as $21,000 per employee in 2021.
When it Comes to the ERC, What Changed Under OBBBA?
OBBBA introduced new provisions aimed at addressing improper ERC claims and clarifying the time limits for claiming or refunding credits.
Specifically, the law (under section 70605(d) of OBBBA) prevents the IRS from allowing or refunding ERCs after July 4, 2025, for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024, even if you otherwise met eligibility requirements.
Other parts of the bill strengthen compliance enforcement by imposing penalties on certain promoters of the ERC who fail to meet due diligence requirements when assisting with certain credit claims.
Why Were There Changes in the First Place?
According to the IRS, the ERC program was a magnet for fraud. In September 2023, citing “rising concerns about a flood of improper Employee Retention Credit claims,” the IRS announced an immediate moratorium on processing new ERC claims. “We assumed we’d see a trickle,” then-serving IRS Commissioner Danny Werfel said, referencing the timing of the claims. “We are seeing a tsunami.”
At the time of the announcement—well after the pandemic had ended—the IRS reported that it had received 3.6 million ERC claims. The open inventory currently includes approximately 600,000 returns—most of which were received within the last 90 days. That represents 15% of all ERC claims since the program opened.
Werfel ordered the moratorium following growing concerns inside the tax agency and from tax professionals, as well as media reports, that a substantial share of new claims from the aging program are ineligible. The fear from tax pros was that businesses were being pressured and scammed by aggressive promoters and marketing, and were therefore making improper ERC claims that could put them at financial risk.
To address some of these issues, in December 2023, the IRS announced a voluntary disclosure program (VDP) for businesses that wish to repay the money they received after filing erroneous ERC claims. The program closed on March 22, 2024, after the IRS received over 2,600 applications with $1.09 billion of improper claims. Businesses accepted into the program had to pay only 80% of the credit received. In addition, the IRS did not charge interest or penalties on any credits that were repaid. And, if the IRS had paid interest on an ERC refund claim, businesses would not need to repay that interest.
Last November, the IRS launched a second ERC voluntary disclosure program, which was only applicable to tax periods in 2021. Under that version, businesses were required to repay 85% of the credit received. As before, the IRS did not charge interest or penalties on any credits that were repaid promptly. And as before, if the IRS paid interest on your ERC refund claim, businesses didn’t need to repay that interest.
Businesses that didn’t qualify for the voluntary disclosure program but submitted a questionable claim could also consider a withdrawal. Under the withdrawal option, individuals who have filed an ERC claim but have not received a refund can withdraw their submission, avoiding future repayment, interest, and penalties.
Despite those options, the IRS still faced a massive backlog of ERC claims that they considered fraudulent. Congress put an end to some of what were considered last-minute claims—and the most likely, the IRS felt, to be fraudulent—with these new (retroactive) limitations under OBBBA.
Are all ERC Claims for the Third and Fourth Quarters of 2021 Limited Under OBBBA?
No, only new ERC claims filed after January 31, 2024, are limited by section 70605(d). If you filed an ERC claim before that time, you are not impacted. If you have already received your ERC refund, you are not impacted (barring fraud or other misconduct).
What If I Claimed an ERC for the Third or Fourth Quarter of 2021 Before January 31, 2024, and Then Filed an Amended Return Withdrawing It?
There’s no impact. Section 70605(d) does not apply to your amended return. The IRS will process your amended return, withdrawing the claimed ERC.
Can I Still File a Return Claiming an ERC for the Third or Fourth Quarter of 2021 if I Missed the January 31, 2024, Deadline?
No. No new ERCs claimed on a return for those periods will be allowed or refunded if filed after the January 31, 2024, deadline. (Even without OBBBA, the statute of limitations has run.)
When Is My Tax Return Considered Filed for OBBBA Purposes?
An original or amended return claiming a ERC refund is treated as filed on or before January 31, 2024, if the claim was postmarked and properly mailed or submitted to the appropriate IRS office by that date.
Can the IRS Continue Processing Other Items on a Return if an ERC Claimed on That Return Is Limited by OBBBA?
Yes. If the disallowed ERC claim is just one of other items claimed on your return, the IRS can continue to process the other items.
Can I Appeal If My ERC Is Disallowed as a Result of OBBBA?
Yes. If your claim is disallowed, you will receive Letter 105-C, Claim Disallowed. You may appeal to the IRS Independent Office of Appeals if you believe the IRS improperly disallowed it under OBBBA.
(Quick note: Appeals is largely shut down right now, thanks to the budget impasse. You can timely file your appeal, but if you have an appointment related to the Independent Office of Appeals during the shutdown, it will be cancelled. IRS personnel will reschedule those meetings when the government reopens.)
This is Good, Right? I Can Rely on This Info?
Er, not exactly.
The IRS issued this guidance in Fact Sheet 2025-07.
But it’s important to understand that guidance found on the IRS website isn’t to be treated as gospel. Specifically, as the IRS has reminded us time and again, FAQs and other information on the IRS website are not included in the Internal Revenue Bulletin and can’t be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.
So What Should I Do?
I always encourage taxpayers to consult a tax professional. And, of course, keep checking in with our Forbes team for more information.
Source: https://www.forbes.com/sites/kellyphillipserb/2025/10/22/irs-issues-guidance-on-how-controversial-erc-refunds-will-be-treated-under-new-tax-law/
