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During the height of COVID, governments around the world looked for ways to help small businesses shuttered by the pandemic. In the US, Employee Retention Credits (ERC) were provided as refundable tax credits to help businesses retain employees by offsetting payroll taxes.
But since the pandemic has subsided, the government has been looking into claims and possible impropriety by businesses. The recent “One, Big, Beautiful Bill Act (OBBBA),” has provisions addressing the issues and has released some information recently.
For example, one of these provisions, 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 January 31, 2024 – even if an employer 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.
Employers who filed a claim for the third or fourth quarter of 2021 after January 31, 2024 will likely not get a tax bill if your claim was refunded or credited before July 4, 2025. However, other IRS compliance activities may still result in an adjustment or bill.
If you missed the January deadline, Section 70605(d) does not apply to your amended return. As a result, the IRS will process your amended return withdrawing the claimed ERC.
Under Section 70605(d) 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 January 31, 2024, deadline.
Also, the IRS says that tax returns are only considered “filed” when an original or amended return claiming a refund or credit based on an ERC comes in on or before January 31, 2024 if the claim was postmarked and properly mailed or submitted to the appropriate IRS office, by that date.
Appeals are allowed, notes the IRS. 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 your refund claim reporting ERC eligibility was timely filed on or before January 31, 2024, and the IRS improperly disallowed it under section 70605(d) of the OBBBA.
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