Employee Retention Credit for Construction Businesses: ERC Guide 2026

The Employee Retention Credit (ERC), also called the Employee Retention Tax Credit or ERTC, was a refundable federal tax credit designed to help eligible employers that retained employees during the COVID-19 pandemic.

Construction companies were not automatically eligible simply because they operated during the pandemic. Eligibility depended on factors such as qualified wages, a significant decline in gross receipts, or a full or partial suspension of operations caused by a qualifying government order.

Because the ERC has been subject to significant IRS scrutiny and later legislative changes, construction businesses should treat it as a tax-compliance issue rather than a current equipment-buying strategy. If your company previously claimed the ERC - or believes it may have filed an incorrect claim - review the claim with a qualified tax professional and consult current IRS guidance.

What Is the Employee Retention Credit?

The ERC was a refundable employment tax credit created under the CARES Act to encourage eligible employers to keep employees on payroll during the COVID-19 pandemic.

For eligible employers, the credit generally applied to qualified wages and certain health-plan expenses paid during specified periods in 2020 and 2021.

The rules were different depending on the quarter, employer size, and circumstances. The original Boom & Bucket article's statement that eligible businesses could receive up to $28,000 per employee should therefore not be treated as a universal benefit. The maximum depended on the applicable year and eligibility requirements.

Can Construction Companies Claim the ERC?

Construction companies could qualify for the Employee Retention Credit if they met the applicable IRS requirements for a particular period. Operating in construction or experiencing general pandemic-related business challenges alone did not automatically qualify a company.

How Could a Construction Business Qualify for the ERC?

Two major eligibility pathways were particularly important.

1. A Significant Decline in Gross Receipts

An employer could potentially qualify based on a decline in gross receipts when comparing the applicable quarters with the relevant comparison period.

The percentage thresholds differed between 2020 and 2021, so construction businesses should not apply a single percentage across every ERC period.

The IRS also emphasizes that ERC eligibility can vary from one tax period to another. A business might qualify for one quarter but not another depending on its circumstances.

2. Full or Partial Suspension of Operations

Another potential eligibility pathway involved a full or partial suspension of business operations because of a qualifying government order related to COVID-19.

This is particularly important for construction companies because a disruption to normal business operations is not automatically the same thing as an ERC-qualifying government-order suspension.

Businesses should document the specific government order, the affected operations, the relevant dates, and how the order affected their business.

What Wages Could Count as Qualified Wages?

Qualified wages were generally wages paid to employees during an eligible period, subject to the applicable ERC rules.

The definition and treatment of qualified wages depended on factors including the applicable credit year and employer size.

Construction companies should therefore avoid simply multiplying their entire payroll by an ERC percentage. Payroll records need to be evaluated against the rules for each applicable quarter.

Other considerations can include:

1. Employee payroll records

2. Employer-paid health-plan expenses

3. Employer size

4. PPP loan forgiveness

5. Wages used for other tax credits

6. Wages paid during eligible periods

7. Gross-receipts calculations

8. Government orders affecting operations

The IRS specifically notes that employers claiming the ERC may need to adjust their wage deductions on their income tax returns because the credit affects the amount of wage expense that can be deducted.

ERC and PPP Loans: Why Construction Companies Need to Be Careful

Many construction businesses that operated during the pandemic also received Paycheck Protection Program (PPP) loans.

This creates an important recordkeeping issue: businesses generally cannot use the same wages for both PPP loan forgiveness and the ERC.

For a construction company reviewing an old ERC claim, payroll records should therefore be reconciled with PPP documentation and other applicable credits.

A tax professional can help determine whether wages were properly allocated and whether any amended tax filings are necessary.

ERC Claim Review: What Construction Businesses Should Check

The IRS has increased scrutiny of ERC claims because of the high volume of questionable claims.

As of the week ending August 1, 2026, the IRS reported approximately 17,300 remaining ERC claims in various stages, including review, payment or disallowance, audit, and appeals.

If your construction company already claimed the ERC, organize the documentation supporting the claim.

A useful review checklist includes:

Payroll records: Confirm the wages used in the calculation.

Eligibility documentation: Keep evidence showing why the company qualified for each claimed period.

Government orders: If relying on a suspension of operations, retain the applicable orders and documentation showing their impact.

Gross-receipts calculations: Preserve the figures and methodology used to establish eligibility.

PPP records: Verify that wages weren't improperly counted for both programs.

Tax returns: Check whether wage deductions were properly adjusted.

Claim calculations: Reconcile the numbers submitted to the IRS with your underlying payroll records.

Original ERC Guidance vs. 2026 Claim Review

What If Your ERC Claim Was Incorrect?

If a construction business believes it submitted an incorrect ERC claim, it should not simply ignore the issue.

The IRS provides a withdrawal process for certain claims that have not been paid or whose refund checks have not been cashed or deposited. Eligibility for withdrawal depends on specific conditions, including whether the adjusted employment tax return was filed only to claim the ERC.

The IRS recommends working with a trusted tax professional when determining how to address an ERC claim.

If the IRS has already issued a disallowance notice, different procedures may apply. For example, IRS Letter 105-C explains that an ERC claim may have been disallowed because the business was ineligible or because the claim was untimely, and the notice includes information about potential appeal rights.

How Could ERC Funds Support a Construction Business?

For businesses that legitimately received an ERC refund, the funds could improve overall cash flow and provide additional financial flexibility.

However, it is better to think of the ERC as a historical tax credit, not as a financing mechanism for purchasing construction equipment today.

Construction companies evaluating equipment investments should separately consider:

1. Equipment utilization

2. Purchase price

3. Maintenance history

4. Repair costs

5. Financing costs

6. Expected productivity

7. Project demand

8. Total cost of ownership

Keeping these decisions separate from ERC eligibility can help avoid confusing a tax-credit issue with an equipment-investment decision.

Frequently Asked Questions

Does the ERC still exist in 2026?

The ERC was created for eligible wages paid during specified COVID-19 periods. Standard filing deadlines have passed, and later legislation further restricted certain late 2021 claims. Businesses with existing claims should review their status with the IRS or a qualified tax professional.

Can a construction company still claim the ERC?

Generally, businesses should not assume they can file a new ERC claim in 2026. The applicable deadlines have passed for the ordinary 2020 and 2021 claim periods, with additional restrictions applying to certain late 2021 claims.

What should I do if I think my ERC claim was wrong?

Gather your payroll, tax, PPP, gross-receipts, eligibility, and claim documentation and speak with a qualified tax professional. Depending on the claim's status, withdrawal, amendment, response, or appeal procedures may apply.

Does the ERC affect my income tax return?

Yes. The IRS states that the ERC can affect the amount of wage expense a taxpayer is permitted to deduct, meaning an income tax return may need to be adjusted in certain circumstances.

Make Smarter Equipment Decisions for Your Construction Business

The ERC was designed to provide relief to eligible employers during the COVID-19 pandemic—not specifically to fund construction equipment purchases.

For construction companies today, the smarter approach is to separate tax compliance from equipment planning. If your business has an existing ERC claim, verify that it is properly supported and address any IRS correspondence with qualified professional advice.

Then, when you're ready to evaluate your next machine, focus on the equipment itself: condition, operating hours, maintenance history, application, productivity, and total cost of ownership.

Learn: Understand your equipment requirements and the costs associated with owning and operating construction machinery.

Compare: Review machine specifications, hours, condition, pricing, and maintenance history to identify equipment that fits your projects.

Buy: Explore used construction equipment through Boom & Bucket and find machines that match your business's operational needs.

Tax laws and IRS guidance can change. This article is for general educational purposes and is not tax, legal, or accounting advice. Construction businesses should consult a qualified tax professional about their specific ERC circumstances.