The Employee Retention Tax Credit (ERTC), also known as the Employee Retention Credit (ERC) or employer retention tax credit, was one of the most valuable payroll tax credits ever offered to American businesses. Created under the CARES Act as COVID-19 relief, this refundable tax credit put billions of dollars back into the hands of employers who kept workers on payroll during the pandemic.
The IRS has shifted from processing refunds to auditing them. Thousands of employers are still waiting on ERC refund status updates, fighting disallowance letters, or facing IRS ERC audits, often with strict legal deadlines quietly running in the background.
If your business claimed the employee retention tax credit, here's what you need to know in 2026 and how the right payroll tax compliance partner can protect what you've earned.
The Employee Retention Credit is a refundable payroll tax credit for eligible businesses and tax-exempt organizations that paid qualified wages to employees between March 13, 2020, and December 31, 2021. Unlike a deduction, a refundable credit can generate an actual payroll tax refund even if the employer owes little or no tax.
Employers are generally qualified in one of two ways:
Eligible employers claimed the credit on their original employment tax returns or retroactively by filing Form 941-X, an amended payroll tax return. Depending on the quarter, the credit was worth up to $5,000 per employee for 2020 and up to $7,000 per employee, per quarter, for 2021 real money for businesses that fought to keep their teams intact.
Quick note on terminology: ERC and ERTC refer to the same credit. The IRS officially calls it the Employee Retention Credit (ERC), but "Employee Retention Tax Credit" and "ERTC" are used interchangeably.
No, the ERC is closed to new claims in 2026. The filing deadlines have passed, and legislation signed in July 2025 (the One Big Beautiful Bill, or OBBB) went a step further: it barred the IRS from allowing or refunding ERC claims for the third and fourth quarters of 2021 that were filed after January 31, 2024, even if those claims were already sitting in the IRS's queue.
In practical terms, ERC 2026 is no longer about claiming; it's about defending. The credit has moved into a compliance and enforcement phase, and that shift affects every employer who ever filed an ERC claim, whether the refund was paid years ago or is still pending today.
According to the Government Accountability Office, the IRS closed all remaining non-examined ERC claims by December 31, 2025. The claims still open in 2026 are those under examination (audit) or in the appeals process. As of mid-2026, the IRS reported roughly 20,600 remaining ERC claims in various stages under review, under audit, pending payment or disallowance, or sitting with the IRS Independent Office of Appeals.
Translation: if you're still waiting on an employee retention credit refund, your claim is very likely under some form of IRS review rather than simply stuck in a backlog. ERC refund delays in 2026 usually mean scrutiny, not slowness.
The IRS has been vocal about the volume of improper ERC claims driven by aggressive promoters during the pandemic. Heading into 2026, the agency continues to prioritize ERC fraud enforcement, examining both paid and unpaid claims, with particular attention to:
An ERC examination can result in repayment of the refund, back taxes, interest, and tax penalties. For employers who claimed in good faith, the difference between a smooth audit and a costly one usually comes down to one thing: documentation.
Here's the update too many employers miss. If the IRS disallows your ERC claim, typically via Letter 105-C (full disallowance) or Letter 106-C (partial disallowance), a strict two-year clock starts on the date of that letter. Within those two years, you must either reach an agreement with the IRS, file a refund suit in federal court, or formally extend the deadline.
Filing an appeal does not stop the clock. If the two-year window closes while your case is still in Appeals, the IRS is legally barred from paying your refund even if you were right all along.
In April 2026, the IRS announced a streamlined process to help eligible taxpayers who responded to a disallowance and have six months or less remaining on their two-year window file Form 907, Agreement to Extend the Time to Bring Suit. The IRS is also mailing new CP320B reminder notices to affected employers. If you've received a disallowance letter, calendar that deadline now; it is unforgiving.
An IRS ERC audit typically begins with an information document request asking you to substantiate eligibility and your credit calculations. Employers under ERC examination should expect to produce:
Respond fully and on time. In many cases, it pays to go further, proactively explaining why you qualify, even on points the IRS hasn't yet raised. If the audit ends in a disallowance you disagree with, you can protest to the IRS Independent Office of Appeals or file suit, but remember, the two-year deadline keeps running through it all.
This is where professional payroll audit support matters. Employers who partner with payroll tax specialists walk into an ERC examination with organized records, defensible calculations, and a clear eligibility narrative instead of scrambling to reconstruct 2020 payroll data under deadline pressure.
Whether your ERC refund was paid in 2022 or is still pending today, these steps belong on your 2026 compliance checklist:
Is ERC still available in 2026? Can employers still claim it?
No. The claim windows have closed, and 2025 legislation blocked late-filed claims for Q3 and Q4 of 2021. No new employee retention tax credit claims can be filed in 2026.
Is the IRS still processing ERC refunds?
The IRS closed all non-examined claims by the end of 2025. The claims still open in 2026 are in audit, disallowance review, or appeals. If your refund hasn't arrived, your claim is likely under examination or awaiting a compliance decision.
How long does an ERC refund take now?
There's no standard timeline anymore. Claims under audit or in appeals can take many months, sometimes longer. Checking your ERC refund status through IRS correspondence, your tax transcripts, or a payroll tax professional is the most reliable approach.
What happens if my ERC claim is audited?
You'll need to substantiate eligibility and your calculations with payroll records and supporting documentation. Unsupported claims can be disallowed, and paid refunds can be clawed back with penalties and interest. You retain appeal rights, but the two-year post-disallowance deadline applies.
What documents should employers keep for ERC?
Payroll records, quarterly gross receipts data, applicable government orders, eligibility analyses, Forms 941 and 941-X, PPP forgiveness records, and all IRS correspondence. Keep them well beyond the refund date. Enforcement activity is continuing throughout 2026 and beyond.
What's the difference between ERC and ERTC?
Nothing, they're two names for the same credit. The IRS uses "Employee Retention Credit (ERC)," while many businesses and advisors say "Employee Retention Tax Credit (ERTC)."
The employee retention tax credit delivered vital relief when businesses needed it most. In 2026, it demands something different: vigilance. Between IRS ERC audits, disallowance deadlines, and evolving guidance, employers can't afford to navigate this landscape alone.
PayProNext helps employers stay ahead of it all. Our payroll tax specialists provide end-to-end payroll tax compliance services from ERC audit support and documentation reviews to accurate payroll tax filing services, amended return preparation, and outsourced payroll services that keep every quarter clean and defensible.
Whether you're responding to an IRS notice, preparing for a potential ERC examination, or simply want confidence that your payroll reporting can withstand scrutiny, our team is ready to help.
Contact PayPronext today for a payroll compliance consultation and turn payroll tax complexity into peace of mind.
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