If your business receives an Employee Retention Credit (ERC) refund in 2026 for wages paid in 2020 or 2021, you may have an important tax planning opportunity.
Many businesses filed ERC claims years after they filed their original income tax returns. Because the IRS took so long to process many claims, some refunds are only now being paid, even though the related tax years are closed.
To address this situation, the IRS currently allows taxpayers to report the ERC refund as taxable income in the year they receive it. Following this guidance can help you avoid unnecessary disputes with the IRS.
At the same time, you may want to protect your rights. Some tax professionals believe the IRS’s position could ultimately be rejected by the courts. If that happens, taxpayers who paid tax on their ERC refunds may be entitled to a refund.
One way to preserve that opportunity is to file a protective refund claim after reporting the income on your 2026 return. This approach complies with current IRS guidance while keeping the door open to recover the tax if the law changes in your favor.
If you want to discuss your ERC refund, please get in touch with us at hello@agfintax.com.
