Employee Retention Credit Pending: 7 Reasons Your ERC Claim Is Delayed in 2026

Now it's 2026, and your Employee Retention Credit pending status hasn't changed. You call the IRS, and they tell you it's "still being processed." Your accountant shrugs and says there's nothing to do but wait. Meanwhile, your business could really use that money.

Here's what nobody's telling you: if your Employee Retention Credit is still pending after three years, something is seriously wrong. The IRS isn't just slow. They're investigating. And if you don't take action now, you could face an audit, penalties, or even complete rejection of your claim.

Let me break down exactly why your Employee Retention Credit pending claim is stuck in limbo and what you need to do about it before it's too late.

Reason #1: The IRS Is Drowning in Fraudulent ERC Claims

Let's start with the biggest problem. The Employee Retention Credit program was supposed to help businesses survive the pandemic. Instead, it became the largest tax fraud scheme in recent history.

The numbers are staggering. The IRS received over 3.6 million ERC claims totaling more than $230 billion. But here's the kicker: the IRS estimates that 70% to 90% of those claims are fraudulent or improper.

That's why the rejection rate is now 77%. Three out of four claims are being denied. And the IRS isn't just rejecting obvious scams anymore. They're scrutinizing every single claim, including yours.

If your claim is still pending, the IRS is likely reviewing it for red flags.

Reason #2: Your Claim Was Flagged for Audit Review

This is where most businesses get into trouble. The IRS uses automated systems to flag suspicious claims. If your claim triggered any of these red flags, it's sitting in an audit queue:

Red Flag #1: You claimed ERC for all quarters in 2020 and 2021

Very few businesses actually qualified for every quarter. If you claimed maximum credits across the board, the IRS wants to know why.

Red Flag #2: Your employee count doesn't match your previous tax returns

The IRS compares your Form 941-X to your original 941 returns. If the numbers don't align, your claim gets flagged.

Red Flag #3: You claimed credits but your revenue didn't decline

The ERC requires either a significant revenue decline or a government-ordered shutdown. If your financials don't support your claim, you're under review.

Red Flag #4: You used a third-party promoter who charged a percentage fee

The IRS has blacklisted certain ERC mills. If you used one of these companies, your claim is automatically flagged for closer examination.

Reason #3: Your Documentation Is Missing or Incomplete

Here's a truth bomb: most businesses that filed for ERC have terrible documentation. They heard they qualified, filed the paperwork, and assumed the IRS would just send the check. Wrong.

The IRS is now demanding documentation for every Employee Retention Credit claim. If your claim is pending, it's because you haven't provided sufficient proof. The IRS wants to see:

• Quarterly financial statements showing revenue decline
• Government orders that shut down or restricted your business
• Payroll records for every employee you claimed credits for
• W-2 forms and wage calculations matching your 941-X amendments
• PPP loan forgiveness applications to ensure no double-dipping

If you can't produce these documents immediately, your Employee Retention Credit pending claim is in serious jeopardy. The IRS will likely deny it unless you respond with complete documentation. Many businesses are now scrambling to reconstruct financial records from 2020 and 2021, which is nearly impossible.

Reason #4: You Used an ERC Mill That Made Aggressive Claims

This is the most common reason businesses are stuck with an Employee Retention Credit pending status. They trusted the wrong people.

ERC mills popped up everywhere in 2021 and 2022. These companies charged 20% to 30% of your refund to file your claim. They promised everyone qualified. They used aggressive interpretations of the law. And now, those claims are being systematically rejected.

The IRS has identified specific promoters and companies whose claims are being denied at rates exceeding 90%. If you used one of these firms, your claim is essentially dead in the water. The IRS isn't just denying these claims. They're investigating the businesses that filed them for potential fraud.

Many businesses are now being offered the Voluntary Disclosure Program to withdraw their claims before formal audits begin. If your Employee Retention Credit is pending and you used an aggressive promoter, this might be your only way out.

Reason #5: You Have Quarter-by-Quarter Eligibility Problems

This is a technical issue, but it's sinking thousands of claims. The ERC rules changed between 2020 and 2021. The eligibility requirements changed. The calculations changed. And most businesses don't realize they're making quarter-specific mistakes that invalidate their entire claim.

For example, in 2020, you needed a 50% revenue decline compared to the same quarter in 2019. In 2021, that threshold dropped to 20%. But here's the catch: you have to qualify separately for each quarter. You can't average your annual revenue and apply for all four quarters.

Many Employee Retention Credit pending claims are stuck because businesses claimed credits for quarters they didn't actually qualify for. The IRS reviews each quarter individually. If even one quarter is wrong, they're denying the entire claim rather than processing a partial refund.

Additionally, if you received a PPP loan and didn't properly allocate which wages went to PPP forgiveness versus ERC, your claim is invalid. The IRS has sophisticated systems that cross-reference PPP and ERC data. If there's any overlap, your claim gets rejected.

Reason #6: IRS Staffing Shortages and Processing Backlogs

Let's be honest about the elephant in the room. The IRS is a mess right now. In 2025, they laid off 26% of their workforce due to budget cuts. The remaining employees are overwhelmed, undertrained, and dealing with a backlog of millions of claims.

Your Employee Retention Credit pending claim might be perfectly legitimate, but it's sitting in a pile with 1.4 million other claims waiting for manual review. The IRS simply doesn't have the staff to process everything.

Processing times for ERC claims have stretched from the initial 90 days to well over three years. Some businesses filed in early 2021 and still haven't received their refunds in 2026. The IRS has acknowledged the backlog but has provided no timeline for when it will be cleared.

Reason #7: Your Business Doesn't Actually Qualify (But You Don't Know It Yet)

This is the harsh reality many businesses are about to face. A huge number of Employee Retention Credit claims were filed by businesses that simply don't qualify. Period.

The ERC has strict eligibility requirements:

1. Your business experienced a significant revenue decline in specific quarters
2. OR your business was subject to a full or partial government shutdown order

Most businesses fail on both counts. Here's where the confusion came in:

Misconception #1: "Supply chain disruptions qualified me for ERC"

Wrong. Supply chain issues alone don't qualify unless they resulted from a government order that shut down your supplier. General market disruptions don't count.

Misconception #2: "My business was essential, so I qualified"

Wrong again. Being essential actually makes it harder to qualify because you weren't shut down. Unless your operations were significantly limited by government orders (like capacity restrictions), you don't qualify.

Misconception #3: "My revenue was down, so I automatically qualify"

Not quite. Your revenue had to decline by at least 50% (in 2020) or 20% (in 2021) compared to the same quarter in 2019. A 10% or 15% decline doesn't qualify, no matter how much it hurt your business.

What to Do Right Now If Your Employee Retention Credit Is Pending

If you're reading this and panicking because your claim has been pending for years, here's your action plan:

Step 1: Request Your IRS Transcript

Call the IRS at 800-829-4933 and request your account transcript. This will show the status of your claim and whether it's been flagged for audit or examination. Don't wait for the IRS to contact you. Be proactive.

Step 2: Gather All Supporting Documentation

Pull together every piece of documentation that supports your claim:

• Financial statements from 2020-2021
• Government shutdown orders (if applicable)
• Payroll records and Form 941 returns
• PPP loan documentation
• Calculations showing how you determined eligibility

If you can't produce complete documentation, your claim is likely going to be denied. Start reconstructing these records now.

Step 3: Consider the Voluntary Disclosure Program

If you used an aggressive promoter or you're now uncertain about your eligibility, the IRS Voluntary Disclosure Program allows you to withdraw your claim and repay 20% of the credit received without penalties. This program has deadlines, so don't wait.

Step 4: Do NOT Do This Alone

The biggest mistake businesses make is trying to handle this themselves. The IRS isn't your friend right now. They're actively investigating ERC claims, and anything you say can be used against you in an audit or examination.

You need professional representation from a tax resolution specialist who understands ERC law and has experience negotiating with the IRS. This isn't the time for your regular bookkeeper or even your CPA. You need someone who deals with IRS controversies every single day.

Step 5: Prepare for Multiple Scenarios

Your Employee Retention Credit pending claim could result in several outcomes:

• Full approval (unlikely at this point, but possible)
• Partial approval (IRS accepts some quarters, denies others)
• Full denial (you receive nothing and may owe penalties)
• Audit notice (formal examination with potential fraud penalties)

Each scenario requires a different strategy. Don't assume the best-case scenario. Plan for the worst and hope for the best.

The Bottom Line: Stop Waiting and Start Acting

If your Employee Retention Credit is still pending in 2026, the clock is ticking against you. The IRS is systematically reviewing, auditing, and denying claims at unprecedented rates. Every day you wait is another day the IRS builds its case.

The businesses that survive this ERC audit wave are the ones that take proactive action. They gather documentation. They seek professional help. They respond to IRS inquiries immediately and thoroughly.

The businesses that don't survive are the ones that stick their heads in the sand and hope the problem goes away. It won't. The IRS is more aggressive on ERC enforcement than any tax issue in the past decade.

Don't let your Employee Retention Credit pending claim turn into a financial nightmare. Act now.