After years of waiting, some businesses are still receiving Employee Retention Credit refunds.

The check arrives.

The money hits the account.

It would be easy to assume the ERC file is finally closed.

It may not be.

For businesses that claimed the ERC but never adjusted the related wage deduction on their income-tax return, receiving the refund can create another tax issue—this time on the income-tax side.

And current IRS guidance provides a relatively straightforward way to address it.

Why the Refund Can Create Another Tax Issue

The ERC was tied to qualified wages paid during the pandemic.

But the tax rules were not designed to allow a business to receive the credit and retain the full income-tax deduction for the same wages.

The ERC generally reduces the wage expense otherwise deductible for the year in which those qualified wages were paid.

The problem is timing.

Many businesses filed their original 2020 or 2021 income-tax returns before their ERC claims were processed. Some did not reduce their wage deductions on those returns.

Years later, the ERC refund finally arrives.

Now the business has received the credit while its old income-tax return may still reflect the larger wage deduction.

That mismatch needs to be addressed.

The IRS Now Provides a Practical Fix

Current IRS guidance says that a taxpayer in this situation isn't necessarily required to amend the old income-tax return.

Instead, if the ERC claim was allowed and the related wage expense was never reduced, the taxpayer generally can include the overstated wage-expense amount in gross income in the year the ERC is received.

So if an eligible business receives its ERC refund in 2026, the corresponding adjustment may appear on its 2026 income-tax return.

That can be considerably simpler than attempting to reopen an older tax year.

But simpler doesn't mean the refund should simply be deposited and forgotten.

There May Be Another Decision to Evaluate

There is a separate legal question surrounding whether current-year income inclusion is ultimately the correct result in every closed-year situation.

That distinction matters.

A taxpayer may choose to follow the IRS's current reporting position while separately evaluating with tax counsel whether a protective refund claim is appropriate.

A protective claim generally seeks to preserve the taxpayer's ability to request a refund later if subsequent legal authority changes the treatment.

This is not an automatic step for every ERC recipient.

It is a procedural decision that depends on the taxpayer's facts, filing deadlines, legal position, and potential dollars at stake.

What Business Owners Should Review

If an ERC payment arrives now, don't evaluate the check in isolation.

Review:

whether the ERC was actually allowed and received;
whether the corresponding wage deduction was previously reduced;
which income-tax return originally deducted the wages;
whether another adjustment is required instead of income inclusion; and
whether preserving a potential refund position warrants further legal review.

There is another important distinction: if the wages were capitalized rather than deducted, current IRS guidance notes that different adjustments may be necessary.

The accounting history matters.

Bottom Line

Receiving the ERC refund isn't necessarily the end of the ERC tax story.

For businesses that received the credit without previously reducing the corresponding wage expense, current IRS guidance provides a practical path: address the overstated deduction through income in the year the ERC is received when the applicable requirements are met.

The more sophisticated question is whether that's where the analysis should end.

For a meaningful refund, it may be worth reviewing both the current filing treatment and whether any rights should be preserved before the applicable refund-claim period closes.

Received an ERC Refund?

If your business recently received an ERC payment, review the income-tax treatment before filing the year's return.

REVIEW YOUR ERC TAX POSITION →

Educational only; not tax or legal advice. ERC treatment depends on the taxpayer's facts, prior income-tax reporting, eligibility, and applicable procedural deadlines.