The Employee Retention Tax Credit (ERTC) 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).

While the ERTC was only available for the 2020 and 2021 tax years, various federal statutes extended the filing deadlines — ultimately allowing businesses to claim the ERTC retroactively into 2025. Fraud under the ERTC program has been a concern since the program’s launch in early 2020.

Right now the IRS is holding hundreds of thousands of ERTC claims in its inventory. The One Big Beautiful Bill Act (OBBB) has provisions addressing those pending claims.

In new frequently asked questions (FAQs) released October 22, 2025, the IRS addressed the disallowance of certain employee retention credits under the OBBB. Specifically, the fact sheet explains that Section 70605(d) of the OBBB prevents the IRS from allowing or refunding ERTCs after July 4, 2025 (the date of enactment of the OBBB) claimed for the third and fourth quarters of 2021 that were filed after January 31, 2024, regardless of whether a taxpayer meets the eligibility requirements. The IRS explains that OBBB’s limitation on ERTC claims only applies to new claims filed after January 31, 2024, and does not apply to any claim for the third or fourth quarter of 2021 filed on or before January 31, 2024 that was refunded or credited before July 4, 2025.

The new FAQs clarify that refunds will not be issued for ERTC 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."

Taxpayers who filed ERTC claims before the cutoff remain eligible for review and appeal if the IRS disallows their credit. For those who can appeal once credit claims have been disallowed, the agency will issue Letter 105-C, Claim Disallowed, with appeal rights through the IRS Independent Office of Appeals.