Employee Retention Credit (ERC) Status in 2025: Moratorium, Audits, and Voluntary Disclosure

ERC status as of 2025:

1. Moratorium on new claims. The IRS stopped processing new ERC claims filed after September 14, 2023. Claims filed before that date are being processed, but slowly (12-18 month processing times). The moratorium may be lifted, but no date has been announced.

2. Audit activity. The IRS has identified a high rate of improper ERC claims (estimated 60-70% of claims filed through ERC mill promoters). Audits focus on:

   • Whether the business actually experienced a “full or partial suspension” of operations due to government orders
   • Whether the business actually experienced a “significant decline in gross receipts” (50%+ decline in a 2020 quarter vs 2019, or 20%+ decline in a 2021 quarter vs 2019)
   • Whether wages used for the ERC were also used for PPP forgiveness (double-dipping prohibition)
   • Whether the business properly excluded wages paid to owners and related parties

3. Voluntary Disclosure Program. The IRS offers a program for businesses that received ERC payments they now believe were improper. Key terms:

   • Repay 85% of the ERC received (the IRS allows a 15% reduction to account for fees paid to promoters)
   • No penalties or interest assessed on the repayment
   • The business must cooperate with any future IRS investigation of the promoter

4. Withdrawal option. For claims that haven’t yet been paid, businesses can request to withdraw the claim entirely (no repayment needed because the credit was never received).

5. Impact on income tax returns. The ERC reduces the deduction for wages on the income tax return. If a business claimed the ERC but did not reduce their wage deduction, they have an additional income tax liability.

6. Promoter liability. Businesses that relied on promoter advice may have claims against the promoter, but the business is liable to the IRS for repayment.