Employee Retention Credit (ERC) — Status and IRS Enforcement — Definition Glossary

Defined by Sarah Mitchell, CPA | Reviewed by: James Okafor, EA | Updated May 2026

Full Definition

The Employee Retention Credit (ERC) was a COVID-era refundable payroll tax credit allowing eligible businesses to receive credits of up to $26,000 per employee for 2020 and 2021. The IRS has issued extensive enforcement guidance and launched an ERC compliance campaign following widespread fraud and improper claims. As of 2024-2025, the IRS has: (1) paused processing of new ERC claims pending a compliance review, (2) created a Voluntary Disclosure Program allowing businesses that received improper ERCs to repay a portion without full penalties, (3) begun auditing businesses with large ERC claims, and (4) assessed tax and penalties against businesses that received fraudulent ERC refunds. For businesses that received ERC refunds they were not entitled to, the IRS is asserting those amounts are additional 941 payroll tax liabilities — adding to existing debt. Businesses with ERC audits combined with existing 941 tax debt are in a complex enforcement situation that requires specialized tax representation.

Why This Matters for Businesses With Tax Debt

Understanding Employee Retention Credit (ERC) — Status and IRS Enforcement is essential for any business owner navigating IRS enforcement or business tax debt. This term directly affects the resolution options available — including whether tax debt financing is a viable solution, how federal tax liens affect the business, and what the IRS can legally collect.

Related Tax Terms

• IRS Form 941
• IRS Audit Types
• Tax Debt Financing

Is Your Business Facing This Situation?

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Type of Tax Debt *-- Select Tax Debt Type --IRS 941 Payroll Tax DebtFederal Tax LienIRS Bank Levy (Active Now)Trust Fund Recovery Penalty (TFRP)State Tax DebtOIC Bridge FinancingMultiple Types

Approximate Tax Debt Amount *-- Select Amount --$10,000 - $25,000$25,000 - $50,000$50,000 - $100,000$100,000 - $250,000$250,000 - $500,000$500,000+

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Sources: IRS.gov; Internal Revenue Code (IRC); IRS Publications 1, 594, 1660, 594. Tax Funds is a financing marketplace — not a lender, CPA firm, or law firm. Content is for informational purposes only and does not constitute tax or legal advice.