Despite the fact that the Employee Retention Credit (ERC) has long been phased out, the program will continue to make headlines in 2026. Thousands of companies are still awaiting a decision from the Internal Revenue Service on submitted ERC claims, defending themselves against IRS audits of previously accepted claims, or trying to negotiate disputes concerning previous ERC applications. Meanwhile, the Internal Revenue Service continues to work on spotting ineligible ERC applications, warning businesses about misleading marketing practices, and advising employers to check their eligibility first.
In this blog, you will find information about the current situation with ERC applications, the reasons why the IRS still pays close attention to the applications for Employee Retention Credit, the main compliance problems companies face, and the steps employers should follow in order to resolve the issue.
Understanding the Current Status of Employee Retention Credit Claims
Even if the ERC Program was intended as a pandemic relief program, its administration is still operational even after many years since the end of eligible wage periods. The Internal Revenue Service continues processing thousands of pending claims at the same time reviewing applications which might not satisfy the eligibility criteria.
The latest IRS data provides a clearer picture of where businesses currently stand.
|
ERC Claim Status (July 2026) |
Approximate Claims Remaining |
|
Under Review |
3,000 |
|
Pending Payment or Disallowance |
4,100 |
|
Under Audit |
5,200 |
|
Awaiting Review of Disallowance Responses |
6,100 |
|
Independent Office of Appeals |
1,600 |
|
Total Remaining Claims |
20,000 |
Why Thousands of ERC Claims Are Still Pending
Though the program provides for payments made in 2020 and 2021, as of July 2026, around 20,000 claims are still being processed by the IRS in different phases. Some of them are going under further review, whereas some have been audited and appealed following their initial ruling. This is because these claims generally relate to difficult questions of eligibility that need a lot of supporting information.
The IRS has informed that it would keep on providing information on claim statistics regularly, which shows its seriousness in resolving the outstanding claims. Business owners having claims pending should keep in mind that delay in the process does not mean approval or rejection but rather a review process.
Why the IRS Is Increasing Its Review Efforts
The main reason why processing takes much longer is due to the high amount of doubtful ERC claims that have been made during the peak time of the program. In most cases, many organizations were convinced by external entities that offered them large amounts of refunds but did not properly assess their eligibility to apply for the credit.
In response, the IRS has adopted a rigorous approach of reviewing documents, eligibility criteria, and calculation of wages. Such an approach allows protecting honest taxpayers and avoiding unnecessary payments from which the organization might incur repayment, penalties, and interest charges.
ERC Eligibility Still Matters in 2026
Even though the employers can no longer claim new Employee Retention Credits on current payroll expenses, qualification is still an important consideration since it determines the pending applications, revised tax returns, and IRS investigations.
It is crucial for employers receiving an IRS inquiry or examining past tax returns to be familiar with how they qualified for the program.
Who Qualified for the Employee Retention Credit
ERC was created to assist those eligible businesses and tax-exempt entities which suffered from qualifying difficulties during the COVID-19 pandemic. Depending on the period in question, employers were considered eligible when their business was suspended either wholly or partly due to governmental orders, faced substantial reduction in gross receipts or qualified as recovery startup businesses during particular quarters in 2021. The amount of qualified wages paid by the eligible businesses was used as the basis for claiming credits.
Even when submitting an amended payroll tax return, businesses will have to show proof that they have met the necessary criteria. Suffering economically during the COVID-19 pandemic is not enough to be automatically eligible for ERC.
|
Primary ERC Eligibility Criteria |
Key Requirement |
|
Government-ordered suspension |
Full or partial operational suspension due to COVID-19 orders |
|
Decline in gross receipts |
Required revenue reduction during eligible periods |
|
Recovery startup business |
Qualification for specific quarters in 2021 |
|
Qualified wages |
Wages must meet IRS requirements and applicable limitations |
Important Limitations Businesses Cannot Ignore
In spite of their eligibility for claiming the credit, businesses still had to adhere to a number of constraints. For instance, employers were not eligible to apply the ERC towards their taxes, where the money had already been used for forgiveness of PPP loans. The same constraints existed in relation to payroll expenses related to particular grants offered by the government.
This issue continues to be relevant during the IRS examination. In answering the questions during audit or documentation request process, employers need to make sure that payroll information, tax filings, and financial statements prove that the business is in line with all those constraints.
Protecting Your Business from ERC Compliance Risks
The IRS will complete its assessment of all other ERC claims, which means that companies should be thinking more about compliance and not taking advantage of opportunities for refunds that may be risky. Companies with claims pending, denied requests, or uncertainty regarding their qualification status have different paths open to them. However, each one of them will need to be assessed and documented properly.
Recognizing Common ERC Scam Warning Signs
The IRS is constantly reminding businesses of those promoters who are guaranteeing ERC refund amounts or asserting that almost all employers are eligible for the tax credit. In many cases, such promoters either ask for an upfront fee based on the amount of expected refund or even have a compensation plan that is linked to the refund. Additionally, many of them force businesses to file claims without checking anything about payroll and finances.
It is also important not to trust any emails, texts, phone calls, and advertisements that promise instant eligibility check-ups because eligibility depends on specific factors set by the IRS and reviewed carefully by tax professionals. Misleading information may bring you into the position where you will have to repay the refund, pay fines and interest on it.
|
ERC Scam Warning Sign |
Why It Matters |
|
Guaranteed eligibility |
Every business must meet specific IRS requirements. |
|
Large upfront fees |
Legitimate advisors typically use transparent fee structures. |
|
Percentage-based refund fees |
The IRS discourages fee arrangements tied to refund amounts. |
|
Pressure to file immediately |
Proper eligibility reviews require time and documentation. |
|
Unsolicited advertisements |
Aggressive marketing is a common characteristic of ERC promoters. |
Options for Businesses Facing ERC Issues
Employers who believe they filed an erroneous ERC claim still have ways to fix the problem. Business organizations that have not yet been paid for the claim filed may use IRS processes to withdraw the claim. Business organizations that have been paid for their claim, but have not cashed the checks, may have means of fixing their filing process even before further measures are taken against them.
In case the IRS rejects an ERC claim by the employer and the employer does not agree with the rejection, there might be administrative appeal or other legal actions that they may undertake based on the situation. Seeking assistance from tax professionals will make it easier for business organizations to do this.
Preparing for Future Tax Compliance After ERC
Even though the ERC is mostly a pandemic-era tax incentive program, there are some lessons to be learned from the program as far as business organizations are concerned in terms of handling tax incentives. Companies that improve their internal control over financial affairs can easily deal with future tax incentives as well as government assistance programs and enforcement by the IRS.
Maintain Complete Payroll and Tax Documentation
Payroll documents, financials, governmental orders, documentation of income, and calculations for the ERC claim should be kept by the business. This is useful in the case the IRS requests more information during an audit or review process. Documentation in general will make it easier for the business to justify the calculation of its qualified wages.
This is not the only area in which keeping proper documentation is beneficial for businesses. Financial documentation will allow businesses to engage in effective tax planning, among other things.
Seek Professional Guidance Before Taking Action
The complexity of the Employee Retention Credit highlights the importance of getting professional tax advice when businesses have to deal with complicated tax incentives. It is necessary to avoid any decisions being made only based on ads and general internet data, especially in response to letters from the IRS or filing an amended tax return.
A qualified accountant or tax specialist can examine your eligibility for the credit, analyze all new guidelines, check the provided documents, and give you some recommendations about what to do next.
The Employee Retention Credit will continue to be a compliance challenge for businesses in 2026 despite the qualification period for wages coming to an end. There are more than 20,000 claims that are still pending in different levels of review at the IRS. Businesses need to take care in documenting their records and ensuring they know their eligibility status from the beginning of the program.
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