global Tax The Big Beautiful Bill Act Targets Fraudulent ERTC Claims July 24, 2025 Since the summer of 2023, the IRS has closely scrutinized claims for the COVID-era Employee Retention Tax Credit (ERTC) to root out fraud. Now Congress has joined the effort with the recently enacted One Big Beautiful Bill Act. The law restricts the payment of some potentially valid claims and increases the penalties for erroneous claims.ERTC BasicsThe ERTC is a refundable tax credit against employment taxes for businesses that continued paying their employees during the pandemic. Eligible employers are those that:Suspended operations due to a government shutdown order in 2020 or the first three quarters of 2021,Experienced significant declines in gross receipts during that period, orQualified as a recovery startup business for the third or fourth quarters of 2021.Employers could claim the credit until April 15, 2025.With a maximum credit of $26,000 per employee, the ERTC quickly attracted the attention of aggressive promoters, some of whom charged substantial fees to help businesses file claims. However, the credit’s eligibility requirements are strict, and many employers — often relying on misleading advice — unknowingly submitted claims that may not hold up under IRS scrutiny. In July 2023, the IRS commissioner warned that the further a claim is removed from the pandemic period, the less likely it is to be considered legitimate.New ERTC provisionsThe OBBBA bars the IRS from issuing any credits or refunds for unpaid claims filed after January 31, 2024, under IRC Section 3134 — that is, claims filed for wages paid:After June 30, 2021, and before October 1, 2021, orBy qualified recovery startup businesses after June 30, 2021, and before January 1, 2022.The provision applies only to credits or refunds allowed or made after the date the OBBBA was enacted. So, you should be in the clear if the IRS already paid a claim you filed after the January 31, 2024, deadline. But it’s worth noting that many employers that claimed the credit were subject to prolonged processing delays, including the IRS’s long moratorium on claims processing. As a result, employers whose claims were legitimate when filed could lose out.The OBBBA also extends the statute of limitations for IRS audits of certain ERTC claims. Previously, claims filed for the third and fourth quarters of 2021 could be examined through April 15, 2027. Under the OBBBA, the statute of limitations for such claims generally is extended to six years from when the claim was filed or April 15, 2028, whichever is later. Important: Note that employers couldn’t claim a deductible business expense for wages used to compute the ERTC — to avoid “double dipping.” So if you didn’t claim deductions for wages in the final quarters of 2021 because you filed a disallowed Sec. 3134 claim, the OBBBA gives you a second chance at a tax break: Under the new law, employers have up to six years from when they filed disallowed ERTC claims to seek refunds of income tax they paid on such wages.Finally, the OBBBA turns up the heat for employers that file erroneous claims for an ERTC or related refund. It provides that the penalty previously applicable only to excessive refunds or credits on income taxes — 20% of the excess — now also applies to excessive employment tax refunds or credits.Beyond the ERTCThe OBBBA is a wide-ranging bill, with dozens of additional business-related tax provisions. Contact our global tax services team to see how the new law will affect your tax planning for 2025 and beyond.
