Many ERC claimants are breathing a sigh of relief given the much toned-down version of the changes to the ERC enacted on July 4, 2025. As enacted, the One Big Beautiful Bill Act (the “OBBBA”) disallows all pending ERC claims submitted after January 31, 2024, related to the third and fourth quarter of 2021 only. Taxpayers that have already received their ERC refunds for the third and fourth quarter 2021 or filed such ERC claims prior to January 31, 2024, remain unaffected. As compared to a former version of the OBBBA, which threatened to disallow all ERC claims filed after January 31, 2024, the OBBBA’s limited disallowance is expected to impact a much smaller scope of ERC claimants.
However, ERC claimants now bear a longer timeframe for a possible IRS audit or other enforcement efforts as the OBBBA extends the statute of limitations to six years (normally three years). As a bit of reprieve, Taxpayers’ ability to claim a wage deduction on their income tax return for the same period in which an ERC is disallowed is also extended to six years.
Finally, the OBBBA expands the IRS’s arsenal of available penalties, as applied to improper ERC claims, to include a 20% penalty for an erroneous claim for refund or credit (previously only applied to income tax) and certain due diligence requirements imposed on ERC promoters when determining taxpayer eligibility or the ERC amount claimed (or else face a $1,000 penalty for each failure to comply). Notably, professional employer organizations are excluded from such requirements.
Overall, the OBBBA left intact most existing ERC claims. However, ERC claimants, underwriters, and buyers that acquired an ERC claimant business may need to reassess their risk profile in light of the IRS’s expanded statute of limitations and penalties.
