ERC updates & deadlines – Revised to incorporate new IRS FAQs
Mar 23, 2025
The ERC is a refundable tax credit created in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses impacted by COVID-19. The credit applied to wages paid from March 13, 2020, to Sept. 30, 2021, and extended to Dec. 31, 2021. It originally allowed eligible employers to claim a credit against employment taxes for 50% of qualified wages; the percentage later increased to 70% for the first three quarters of 2021. Eligibility required a full or partial suspension of operations due to government orders or a significant decline in gross receipts.
You may have questions about whether an amended return should be prepared to reflect the ERC claim. In March 2023, the IRS Office of Professional Responsibility issued relevant guidance on this issue. Tax Section members can download the ERC decision tree with various decision points to help protect you and your firm from significant risk. Remember, each situation should be evaluated based on the facts and circumstances to determine the proper treatment.
To counter the flood of claims resulting from the work of ERC promoters, the IRS announced in September 2023 a moratorium on processing claims submitted after Sept. 14, 2023, to give the agency time to digitize information on the large study group of ERC claims. Further, the IRS announced a voluntary disclosure program (VDP), allowing businesses to repay questionable employee retention credit (ERC) claims without penalties and interest.
In June 2024, the IRS announced processing of claims in groups, categorizing them as either high risk, low risk or unacceptable level of risk.
In August 2024, the IRS announced it was resuming processing for ERC claims filed between Sept. 14, 2023, and Jan. 31, 2024 (extending the moratorium from Sept. 14, 2023, to Jan. 31, 2024). Additionally, the IRS opened a second VDP until Nov. 22, 2024, allowing businesses that determined they did not have a valid 2021 ERC claim to repay the credit. For more information and details, see the IRS FAQs.
In September 2024, the IRS announced it launched a supplemental claim process allowing third-party payers to correct ERC claims for specific clients deemed ineligible while retaining claims for those who qualify. This aims to help streamline the resolution of incorrect claims without impacting all clients served by the payer.
The IRS added five FAQs about the employee retention credit (ERC) on March 20, 2025, addressing how to handle the credit on tax returns under various scenarios, focusing on topics such as claiming the ERC, income tax return calculations and scams. Although the FAQs are not authoritative guidance, they provide answers to questions about the statute of limitation expiring, as discussed on the Tax Section Odyssey podcast.
On July 4, 2025, President Trump enacted H.R. 1, P.L. 119-21, the law known as the One Big Beautiful Bill Act (OBBBA). The act requires ERC promoters to comply with due diligence requirements with respect to a taxpayer’s eligibility for (or the amount of) an ERC. The act applies a $1,000 penalty for each failure to comply. It also extends the penalty for excessive refund claims to employment tax refund claims. It also prevents the IRS from issuing any additional unpaid claims under Sec. 3134, unless a claim for a credit or refund was filed on or before Jan. 31, 2024.
