New IRS ERC Guidance 2025: What Businesses Need to Know About Employee Retention Credits

The Internal Revenue Service (IRS) recently issued new guidance on the Employee Retention Credit (ERC). The guidance comes as part of Fact Sheet 2025-07 and explains limits, rules, and appeal rights for ERC claims. This is especially important for businesses with claims for the third and fourth quarters of 2021 that were filed after January 31, 2024.

If your business is affected, it’s crucial to understand these updates so you don’t miss out on potential tax credits. In this article, we’ll explain everything you need to know in simple terms.

What Is the Employee Retention Credit (ERC)?

The Employee Retention Credit, or ERC, is a tax credit that helps businesses keep employees on payroll during tough times, like the COVID-19 pandemic.

Here’s how it works in simple words:

Businesses that keep employees and pay wages may qualify for a credit.
The credit reduces the amount of taxes your business owes.
It can even result in a refund if the credit is more than the taxes you owe.

The ERC was especially helpful during 2020 and 2021 when many businesses faced closures, reduced revenue, and other financial challenges.

Why the New IRS Guidance Matters

The IRS recently released Fact Sheet 2025-07. This guidance explains:

Limits on claims: Businesses that file late claims for Q3 and Q4 2021 after January 31, 2024, may face disallowance.
Appeal rights: Businesses can appeal if their ERC claim is denied.
Compliance rules: The guidance clarifies what counts as timely filing and how to stay compliant.

For businesses that filed claims late, this is especially important. Without understanding the new rules, you might lose out on credits your business qualifies for.

Who Is Affected

Not all businesses are affected by the new guidance. Here’s who should pay attention:

Businesses that filed ERC claims for Q3 or Q4 2021 after January 31, 2024.
Businesses that are still waiting for ERC refunds from those quarters.
Businesses that plan to amend or appeal claims that were previously denied.

If your business falls into one of these categories, it’s important to review the IRS guidance and see how it affects your ERC claim.

How to Check If Your Claim Is Safe

To make sure your ERC claim is protected:

Review your claim date: Check if you filed your ERC claim after January 31, 2024.
Confirm documentation: Make sure you have records of wages, employee counts, and other required information.
Compare to IRS limits: The IRS guidance explains limits on late claims, so make sure your claim is within these rules.
Consult a tax professional: An experienced accountant or tax advisor can help you understand your rights and ensure you follow all IRS rules.

What to Do If Your Claim Is Denied

The IRS guidance also explains appeal rights. If your ERC claim is denied, you can:

Request a reconsideration using IRS forms and instructions.
Provide additional documentation to prove eligibility.
Appeal decisions to the IRS Office of Appeals if necessary.

It’s important not to ignore a denied claim. Many businesses recover their credits by following the appeal process carefully.

Deadlines and Timing

Timing is a key factor under the new guidance:

Claims for Q3 and Q4 2021 filed after January 31, 2024, are at risk of being disallowed.
Appeals must be filed within a specific time frame, usually 30 to 90 days from the notice of denial.
Staying aware of deadlines is critical to ensure your business receives the ERC credit it deserves.

Missing deadlines could mean losing out on thousands of dollars in tax relief.

Tips to Protect Your ERC Claim

Here are some simple tips for businesses:

Keep detailed records: Wages paid, employee hours, and payroll documentation are essential.
File claims on time: Even small delays could affect eligibility under the new guidance.
Check IRS FAQs regularly: The IRS updates guidance often, so staying informed is key.
Work with a tax professional: They can help you navigate deadlines, documentation, and appeals.
Review eligibility carefully: Make sure you qualify for ERC before filing a claim to avoid delays or denials.

Why ERC Credits Are Important

ERC credits can be a lifeline for businesses. They provide:

Cash flow support: Refunds or tax credits free up money for operations.
Employee retention: Keeping workers on payroll helps your business stay strong.
Business growth: Extra funds can be reinvested to expand operations or improve services.

By following the new IRS guidance carefully, businesses can maximize these benefits and avoid losing credits.

Key Takeaways

The IRS issued Fact Sheet 2025-07 with new ERC guidance.
Late claims for Q3 and Q4 2021 filed after January 31, 2024, may be disallowed.
Businesses have appeal rights if claims are denied.
Keeping records, filing on time, and consulting professionals are essential steps.
ERC credits can help businesses with cash flow, employee retention, and growth.

Final Thoughts

The Employee Retention Credit has been a critical tool for businesses during challenging times. With the new IRS guidance, it’s more important than ever to understand rules, deadlines, and appeal rights.

Businesses that stay informed, maintain records, and act promptly will have the best chance of maximizing their ERC credits. Even late claims may still be saved through careful review and proper appeals.

If your business received a notice from the IRS or filed a late ERC claim, review the guidance today and take action. Protecting your ERC credit could mean thousands of dollars in relief for your business, helping you continue to grow and support your employees.