Employee Retention Tax Credit: Latest Updates 2025

You can’t file new Employee Retention Credit (ERC) claims in 2026, but the ERC is still very much alive in another way audits, repayments, appeals and scam cleanup. The IRS is focusing on reviewing old claims, challenging aggressive filings, and dealing with promoters who pushed ineligible businesses into the program.

What Is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable payroll tax credit that was originally created to help employers keep workers on payroll during the COVID-19 period. The program applied to past wages paid in 2020 and 2021, and although the credit itself is no longer available to claim, it still impacts thousands of businesses today.

Even in 2026, many employers are still dealing with ERC-related issues such as:

• Claims that remain unprocessed

• IRS audits and documentation requests

• Letters disallowing previously filed claims

• Questions about whether a past claim should be withdrawn, corrected, or repaid

ERC is no longer about applying for refunds it’s about cleaning up, verifying eligibility, and handling IRS enforcement activity.

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How Much Was the ERC Worth?

The ERC was a significant benefit while it existed, which explains why so many businesses filed claims and why the IRS is still reviewing them years later.

In total, a business could potentially receive up to $26,000 per employee if it qualified under all applicable periods. This large benefit is exactly what attracted aggressive promoters and led to widespread incorrect claims a major reason for the IRS crackdowns happening now.

Who Originally Qualified for the ERC?

Although the ERC program has ended, understanding the original eligibility rules is still important for businesses now facing an audit or reconsidering a past claim.

Employers generally qualified in one of three ways:

1. Government-Ordered Suspension of Operations

The business was fully or partially restricted by a government mandate during the pandemic.
Examples included capacity limits, shutdown orders, travel restrictions, or forced operational changes.

2. Significant Revenue Decline

The business experienced a substantial drop in gross receipts compared to pre-pandemic levels. This decline needed to be tied to specific quarters during the 2020–2021 period.

3. Recovery Startup Businesses

Some newer businesses that began operating after February 15, 2020, could qualify for a smaller version of the credit for the final 2021 quarters.

These criteria matter today because the IRS is examining whether businesses actually met these tests not whether a promoter said they did.

Can You Still Claim the ERC in 2026?

For most employers, no.

Several things changed:

• The normal amendment deadlines for many quarters have passed or are effectively blocked

• The One Big Beautiful Bill Act (OBBBA) added ERC compliance provisions that prevent the IRS from allowing or refunding certain late-filed ERC claims for 2021, especially claims filed after January 31, 2024 for Q3 and Q4 2021.

• The IRS also imposed and extended moratoriums on processing new claims due to fraud concerns.
  

ERC in 2026: Audits, Backlog and IRS Crackdown

Even though you can’t newly claim ERC, the IRS is still actively working through:

• A large backlog of ERC claims

• New enforcement tools granted by recent legislation

• Penalties for promoters and taxpayers with improper claims

Key points for 2026:

• The IRS may have up to six years to audit certain ERC claims.

• The agency continues to warn businesses about ERC scams and aggressive mills.

Many employers are still receiving:

• ERC disallowance letters (Letter 105-C)
• Requests for documentation
• Notices adjusting or recapturing ERC amounts

How to Fix or Resolve Past ERC Claims

There used to be special Voluntary Disclosure Programs (VDP) that allowed businesses to repay incorrect ERC with reduced penalties, but those programs closed in 2024.

In 2026, your main options are:

1. Withdraw Unprocessed ERC Claims

If your ERC claim hasn’t been processed or paid yet, many businesses can still withdraw it using the IRS withdrawal procedures.

This can be smart if:

• A promoter pushed you into claiming,

• You’re no longer sure you actually qualify, or

• You want to avoid a painful audit later.

2. Correct Payroll Returns and Income Tax Returns

If you now believe your claim was wrong or overstated, you may need to:

• File amended payroll returns to remove or adjust ERC, and

• Amend your income tax returns to fix wage deductions and related items (because ERC usually required reducing wage deductions by the credit amount).

3. Respond Properly to Disallowance or Recapture Letters

If you receive Letter 105-C (ERC disallowance) and disagree, you can:

• Request an administrative appeal

• Ask for review by the IRS Independent Office of Appeals

• In some situations, file a lawsuit after paying and suing for refund

4. If You Used an ERC Promoter

If a third-party firm prepared your ERC claim:

• Get a copy of all calculations and eligibility analysis they used.

• Check whether they based eligibility only on vague “supply chain” arguments the IRS has warned these often don’t qualify.

• Consider having a reputable CPA or tax attorney re-review everything from scratch.

How to Prepare for an ERC Audit

Even if you believe your claim is legitimate, you should be ready.

1. Review Your Eligibility Story

Be clear on why you qualified:

• Which quarters?

• Government orders or revenue decline?

• How did you measure the decline?

2. Organize Your Documentation

• Payroll records and qualified wage calculations

• Gross receipts by quarter (2019–2021)

• Copies of relevant government orders and internal memos

• Any written analysis you used to support eligibility

3. Work With a Professional

ERC rules are complicated and, in 2026, tied into new compliance provisions under OBBBA and IRS guidance. A tax professional who understands ERC can:

• Help you respond to IRS notices

• Explain your position clearly

• Spot issues before they become costly problems

ERC Scams or red flags to watch in 2026

Even though new claims are mostly closed, ERC promoters and scammers haven’t disappeared. The IRS continues to warn about schemes that could leave you on the hook for repayments, penalties and interest.

Watch out for:

• “Every business qualifies” type marketing

• Firms charging fees based on a percentage of the refund

• Promoters who don’t ask for detailed records and promise quick approval

• Pressure to “file now; we’ll handle the details later”

• Cold calls, spam emails, or social media DMs promising “free money from the IRS”

If you already worked with such a promoter, it’s even more important to review your ERC position now.

Conclusion

The Employee Retention Credit was a powerful lifeline during COVID-19, but in 2026 it’s more about risk management than refund hunting. With aggressive IRS scrutiny, changing rules and long audit windows, waiting and hoping is not a strategy.

Review your claims now, fix what needs to be fixed, organize your documentation, and work with a trusted tax professional. That way, if the IRS comes calling, you’ll be ready and you can focus on running and growing your business instead of worrying about old pandemic-era filings.

FAQs

1. Can I still newly claim ERC in 2026?

In almost all cases, no. Filing deadlines and new law changes have effectively closed the window for new ERC claims, especially for 2021 quarters.

2. What if my ERC claim is still pending?

If your claim hasn’t been processed or paid, you can either:

• Let the IRS continue processing it, or

• Consider withdrawing the claim if you’re unsure about eligibility.

3. I received a letter disallowing my ERC. Do I have options?

Yes. You can usually request an administrative appeal or ask the Independent Office of Appeals to review the decision. Some cases may also be taken to court.

4. Can I still fix an incorrect ERC claim in 2026?

Yes. You can amend payroll and income tax returns and, where allowed, use the withdrawal process. While special voluntary disclosure programs have closed, you can still work with the IRS to correct errors acting early usually reduces risk and penalties.

5. How do I protect my business from ERC promoter problems?

Have a qualified CPA or tax attorney independently review your ERC eligibility and calculations. Don’t rely solely on marketing firms, and be wary of anyone paid on a percentage of your refund.

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