The Employee Retention Credit has been one of the most contentious tax provisions of the past five years. The One, Big, Beautiful Bill Act, signed July 4, 2025, added new compliance provisions that directly affect businesses that claimed the credit. If you received ERC payments or have a pending claim, you need to understand what changed.
What the OBBBA Did to the ERC
The OBBBA included provisions that prevent the IRS from processing ERC claims for Q3 and Q4 of 2021 that were filed after January 31, 2024. If you submitted an amended return (Form 941-X) after that date for third or fourth quarter 2021 ERC, the IRS will not issue a refund. Claims filed before the cutoff date are still being processed, but very slowly.
Additionally, the OBBBA clarified the income tax treatment of the ERC: the wage expense adjustment (reducing your deductible wages by the amount of the credit) can be reported as gross income in the year you receive the credit rather than amending prior year returns. This simplifies the accounting but means you need to plan for the tax impact when the credit hits your account.
If You Already Received ERC Payments
If you received ERC payments and properly reduced your wage deductions on your original or amended returns, you are in compliance. Make sure your records clearly document the credit amount received, the quarters it applied to, the wage expense adjustment, and the filing dates of your Forms 941-X.
If you received the credit but have not yet adjusted your wage deductions, you have a compliance gap. The IRS has indicated this is a priority enforcement area. Consult your tax advisor about filing amended returns or reporting the adjustment as income under the new OBBBA provision.
If You Have a Pending Claim
If your ERC claim is still pending, check the filing date on your Form 941-X. If it was filed before January 31, 2024, it should still be processed, although the timeline remains unpredictable. If it was filed after that date for Q3 or Q4 2021, it will not be paid under the new law.
The IRS’s second Voluntary Disclosure Program for improper ERC claims closed in November 2024. If you filed a claim that you now believe may have been based on incorrect eligibility advice from an ERC promoter, your options are more limited. Contact a tax professional to evaluate your exposure and explore resolution options before the IRS contacts you.
The Bigger Picture
The IRS has identified the ERC as its highest-priority compliance area. Criminal investigations are ongoing against promoters who filed false claims on behalf of businesses. If you worked with a promoter who guaranteed eligibility, charged a percentage of the credit, or filed claims without reviewing your specific facts, document everything and seek independent advice. Being proactive is always better than waiting for an IRS notice.