IRS offers guidance on ERC changes under OBBBA

The Internal Revenue Service issued a fact sheet answering questions about the impact of the recent One Big Beautiful Bill Act on the processing of Employee Retention Credits.

The ERC was included as part of the CARES Act of 2020 as a way to encourage employers to retain employees during the COVID-19 pandemic by subsidizing them with generous tax credits. Even though the law was only intended to help employers who retained and paid employees through the of 2021, Congress gave businesses until April 15, 2024 to claim the ERC for 2020 and April 15, 2025 to claim it for 2021.

That spurred a cottage industry of scammers pressuring businesses to file late claims for the ERC even when they didn't qualify, prompting the IRS to crack down on billions of dollars in fraud. The OBBBA included provisions imposing penalties on ERC promoters and limiting the availability of new ERC credits or refunds after the law's July 4, 2025 enactment date, an extended statute of limitations for assessments, and an expanded penalty for erroneous ERC claims.

The fact sheet that was issued Wednesday notes that Section 70605(d) of the 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 Jan. 31, 2024, even if the taxpayer otherwise met the 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," the IRS added.

Only new ERC claims filed after Jan. 31, 2024, are limited by Section 70605(d). the IRS noted. Under that section of the OBBBA, effective July 4, 2025, no new ERCs claimed on a return for those periods will be allowed or refunded if filed after the Jan. 31, 2024, deadline.