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05 November 2025

New FAQs on employee retention credits seek to clarify disallowances under OBBBA

  • The IRS has reiterated in new FAQS that refunds will not be issued for employee-retention-credit claims filed after January 31, 2024, for the third and fourth quarters of 2021.
  • Taxpayers that received refunds before July 4, 2025, for this period will not be required to return those refunds, although "other compliance activities may still result in an adjustment or bill."
  • If a taxpayer's return contains other claims besides a disallowed claim for employee retention credits, the IRS will process the other items as appropriate.
 

In new frequently asked questions (FAQs) released October 22, 2025, the IRS addressed the disallowance of certain employee retention credits (ERCs) under the "One Big Beautiful Bill Act" (P.L. 119-21, OBBBA).

Background

The ERC is a refundable federal employment tax credit, first enacted as part of the CARES Act in 2020, that was available for qualified wages paid by eligible employers during the COVID-19 pandemic from March 13, 2020, through September 30, 2021 (December 31, 2021, for recovery start-up businesses). The statute of limitations expired on April 15, 2024, for claiming the 2020 credit, and on April 15, 2025, for claiming the 2021 credit. As of July 4, 2025, the OBBBA disallows refunds for the third and fourth quarters of 2021 if the claim was filed after January 31, 2024 (see Tax Alert 2025-1476).

New FAQs

FAQ 1 reiterates that no refunds will be issued for ERC claims filed after January 31, 2024, for the third and fourth quarters of 2021. Under FAQ 3, the IRS will not expect taxpayers to return the refund if they filed a claim after this date for this period and received the refund before July 4, 2025. The IRS then states that "other compliance activities may still result in an adjustment or bill," without further explanation (emphasis in the original). Under FAQ 6, a return is considered filed as of the date the claim was postmarked and properly mailed or submitted to the appropriate IRS office.

If a taxpayer filed an amended return after January 31, 2024, withdrawing an ERC claim that was filed before January 31, 2024, for the third and/or fourth quarters of 2021, FAQ 4 says the IRS will still process the amended return.

If a taxpayer's return contains other claims besides a disallowed ERC claim, FAQ 7 says the IRS will process the other items as appropriate.

FAQ 8 allows taxpayers to appeal disallowed ERC claims that were filed on or before January 31, 2024, to the IRS Independent Office of Appeals.

Implications

The FAQs confirm prior IRS announcements that ERC-related refunds for the third and fourth quarters of 2021 are not forthcoming. Taxpayers that have received refunds for that period may keep them but could still be subject to other IRS compliance activities that may result in an adjustment or bill.

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Contact Information

For additional information concerning this Alert, please contact:

Indirect Tax & State/Local Policy

Workforce Tax Services - Employment Tax Advisory Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor

Document ID: 2025-2229

 

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