IRS Tightens Employee Retention Credit Rules Under the One Big Beautiful Bill

The IRS has released a new fact sheet, FS-2025-07, outlining how the One Big Beautiful Bill Act (OBBBA) reshapes the rules around the Employee Retention Credit (ERC).

The headline change: businesses can no longer claim late ERC refunds for 2021. The new provisions shut the door on retroactive filings and ramp up compliance oversight on promoters who pushed ineligible claims.

If you helped clients file ERC claims, or filed one for your own business, these updates are essential reading.

---

1. The ERC Deadline Has Officially Closed

Under Section 70605(d) of the OBBBA, the IRS is barred from paying or allowing any new ERC refunds for the third and fourth quarters of 2021 if the claim was filed after January 31, 2024.

That means:

• If you missed that January 31 deadline, you can't file a new ERC claim, even if your business otherwise met the eligibility rules.

• The cutoff applies beginning July 4, 2025, but the practical effect is immediate: late-filed claims are disallowed.

This measure effectively ends the "ERC gold rush" that surged through 2023 and 2024, when thousands of businesses submitted retroactive claims through aggressive credit promoters.

---

2. Refunds Already Issued Won't Be Reversed

If you filed an ERC claim after January 31, 2024, but the IRS issued or credited your refund before July 4, 2025, the law doesn't claw it back under Section 70605(d).

However, that doesn't guarantee immunity, your refund could still be reviewed under other IRS enforcement programs if it was improperly claimed.

The takeaway: even if your ERC refund cleared, keep your documentation and payroll records ready for verification.

---

3. Compliance Crackdown on ERC Promoters

The OBBBA adds new penalties for promoters and advisors who failed to meet due-diligence standards when assisting with ERC claims.

The IRS is now empowered to:

• Penalize firms that marketed or prepared ERC filings without confirming eligibility.

• Impose additional sanctions on those who charged contingent or percentage-based fees tied to refund amounts.

This aligns with the IRS's broader "ERC compliance initiative," which has already led to criminal referrals and hundreds of audit notices.

For legitimate advisors, this reinforces the importance of retaining contemporaneous eligibility analyses and maintaining ethical standards when advising on credits.

---

4. Amended Returns to Withdraw ERC Claims Are Still Allowed

If you filed a valid ERC claim before January 31, 2024, but later determined it was incorrect or overstated, you can amend and withdraw the claim, even after that deadline.

The IRS will continue processing these amended returns, and doing so may reduce your exposure to penalties or audits.

This distinction matters: the deadline applies only to new claims, not to corrections or withdrawals.

---

5. Appeals Rights Remain for Disallowed Claims

Taxpayers whose ERC refund claims are rejected under Section 70605(d) will receive Letter 105-C ("Claim Disallowed").

If you believe your claim was filed on time, you can appeal through the IRS Independent Office of Appeals.

The fact sheet directs taxpayers to resources at IRS.gov/ERC105C for guidance on next steps.

---

What This Means for Businesses

In short:

• No new ERC claims can be filed for 2021 Q3 or Q4.

• Refunds already paid aren't automatically reversed, but may face review.

• Withdrawals and appeals remain available pathways.

• Promoter enforcement is intensifying.

For small businesses, this closes one of the last pandemic-era credit programs still on the table, and signals the IRS's shift from issuing refunds to enforcing compliance.

---

How Margen Can Help

The new rules are highly specific, and knowing whether your claim meets the filing cutoff or falls under compliance review isn't always straightforward. Margen can help you check:

"Was my ERC claim filed before the OBBBA deadline?"

"Do I need to amend or withdraw a potentially ineligible claim?"

"What happens if I receive Letter 105-C?"

Margen reviews your filing data and IRS guidance to provide fast, verifiable answers, so you can protect your business before audits begin.

---

For full details, see the IRS Fact Sheet FS-2025-07: IRS.gov.