Massachusetts ended its COVID-19 state of emergency on June 15, 2021, but Massachusetts COVID-19 recovery compliance is still a live issue for businesses in 2026. The emergency orders are gone. The federal tax exposure, employment obligations, and data handling duties that grew out of the pandemic are not. The most pressing items on the list are IRS audits of Employee Retention Credit claims, the taxability of pandemic grants, ongoing Paid Family and Medical Leave contributions, and the health information many employers are still holding from vaccination and testing programs.
Employee Retention Credit Audits Are the Biggest Open Risk
If your business claimed the Employee Retention Credit, assume the IRS is looking. The agency has been explicit that it is actively auditing ERC claims, many of which were filed on aggressive advice from third-party promoters.
The IRS ran a second Voluntary Disclosure Program that let businesses repay credits they weren’t entitled to at 85 cents on the dollar, keeping a 15 percent reduction and avoiding employment tax audits and penalties. That program closed on November 22, 2024.1Internal Revenue Service. Frequently Asked Questions About the Second Employee Retention Credit Voluntary Disclosure Program
Businesses that missed that window have fewer options. You can file an amended employment tax return (Form 941-X) to correct the amount claimed, but amending does not shield you from interest or penalties. The IRS has said that businesses holding improperly claimed credits who did not use the VDP “risk detection by the IRS, which could lead to substantial interest and penalties.”1Internal Revenue Service. Frequently Asked Questions About the Second Employee Retention Credit Voluntary Disclosure Program The Taxpayer Advocate Service has named ERC processing and statute-of-limitations tracking a priority objective for 2026, which means the issue is not going quiet.2Taxpayer Advocate Service. Objective 6 2026
If you have any doubt about whether your ERC claim was properly substantiated — the specific government order you relied on, the quarters you qualified for, the wage calculations — get it reviewed by a tax professional before the IRS gets to it first.
Pandemic Grants Are Generally Taxable Income
Many Massachusetts businesses received recovery grants during the pandemic, whether through the state’s Partnerships for Recovery plan, CARES Act programs, or Coronavirus State and Local Fiscal Recovery Funds. Those grants are generally taxable gross income to the business.
The confusion usually comes from Section 139 of the Internal Revenue Code, which excludes qualified disaster relief payments from gross income. The IRS confirmed that COVID-19 qualifies as a disaster for this purpose.3Internal Revenue Service. Tax Credits for Paid Leave Under the American Rescue Plan Act of 2021 Special Issues for Employees But that exclusion is written for payments to individuals and families covering personal, family, living, or funeral expenses. It does not cover business grants, and it does not cover income replacement like sick leave or wage-replacement payments, which remain taxable to the employee.4GovInfo. 26 USC 139 – Disaster Relief Payments
A business that received a government grant and left it off its return is exposed to back taxes, interest, and penalties. If you have not already addressed how pandemic-era grants were reported, that is a conversation to have with your accountant now rather than after an IRS notice.
Paid Family and Medical Leave Keeps Running
Massachusetts Paid Family and Medical Leave was in place before the pandemic and remained the main vehicle for workers needing time off because of COVID-related illness. It applies to any serious health condition, not just COVID, and the employer obligations are ongoing.5Mass.gov. Paid Family and Medical Leave (PFML) Overview and Benefits
For 2025 and 2026, the contribution rate is 0.88 percent of eligible wages for employers with 25 or more covered individuals. The employer pays 60 percent of the medical leave portion (0.42 percent) and may withhold the rest from employee wages. Employers with fewer than 25 covered individuals owe an effective rate of 0.46 percent, all of which can be withheld from employees; those smaller employers are not required to contribute from their own funds.6Mass.gov. Paid Family and Medical Leave Employer Contribution Rates and Calculator
When an employee notifies you that they need to take leave, they are legally protected against retaliation, pay changes, or loss of benefits.5Mass.gov. Paid Family and Medical Leave (PFML) Overview and Benefits
What To Do With Employee Health Records You Still Have
Many Massachusetts employers collected vaccination records, daily health screening results, and test results during the pandemic. If that data is still on your systems, how you store it matters.
Under the Americans with Disabilities Act, medical information obtained from employees must be kept confidential and maintained in separate medical files, apart from regular personnel records. That rule applies even if the employee volunteered the information.7U.S. Equal Employment Opportunity Commission. The ADA Your Responsibilities as an Employer
HIPAA may or may not apply, depending on how you collected the data. If the information came through a workplace wellness program operating as part of a group health plan, it is protected health information and the full HIPAA privacy, security, and breach notification rules attach. If you collected it directly, outside a group health plan, HIPAA does not apply.8HHS.gov. HIPAA Privacy and Security and Workplace Wellness Programs
Massachusetts state law applies either way. Regulation 201 CMR 17.00 requires any business that owns or licenses personal information of Massachusetts residents to maintain a comprehensive written information security program, administered by the Office of Consumer Affairs and Business Regulation and enforced by the Attorney General. Civil penalties run up to $5,000 per affected individual, which scales fast in a breach.9Cornell Law School. 201 CMR 17.00 – Standards for the Protection of Personal Information of Residents of the Commonwealth
The practical rule for pandemic-era health data: separate medical file, covered by your written information security program, kept only as long as a legitimate business purpose requires.
Insurance Claims and Liability Protections
Business interruption claims for pandemic losses are effectively closed in Massachusetts. In Verveine Corp. v. Strathmore Insurance Co. (2022), the Supreme Judicial Court held that COVID-19 losses did not trigger standard business interruption coverage because “direct physical loss of or damage to” property requires a “distinct, demonstrable, physical alteration of the property.” Government shutdown orders do not physically alter property, and the temporary presence of a virus on surfaces does not count as property damage.10Justia Law. Verveine Corp v Strathmore Insurance Co
On the liability side, two protections still matter. Chapter 64 of the Acts of 2020 gives covered healthcare professionals and facilities immunity from civil liability for care provided during the COVID-19 emergency, as long as they acted in good faith, followed applicable emergency rules, and their decisions were impacted by treatment conditions resulting from the outbreak. Volunteer organizations that provided facilities for the state’s response received similar immunity, excluding gross negligence, recklessness, or intentional harm. This law does not shield businesses generally — only healthcare providers and volunteer organizations.11General Court of Massachusetts. An Act to Provide Liability Protections for Health Care Workers and Facilities During the COVID-19 Pandemic
Federal PREP Act protections remain in effect for anyone involved in manufacturing, distributing, or administering COVID-19 countermeasures like vaccines, antivirals, and diagnostics. Covered persons are immune from suit and liability under federal and state law for claims arising from the administration or use of covered countermeasures, with willful misconduct as the only exception.12Office of the Law Revision Counsel. 42 USC 247d-6d – Targeted Liability Protections for Pandemic and Epidemic Products and Security Countermeasures A December 2024 amendment extended these protections through December 31, 2029.13Federal Register. 12th Amendment to Declaration Under the Public Readiness and Emergency Preparedness Act for Medical Countermeasures Against COVID-19 For injured individuals, the exclusive remedy outside willful misconduct is the administrative Countermeasures Injury Compensation Program, not a lawsuit.
If Your Liquor License Was Suspended During the Emergency
No COVID-specific penalty can be newly imposed now, because the executive orders authorizing them have been rescinded. But the administrative consequences from enforcement that already happened can still be live. COVID-19 Order No. 53 empowered both the Alcoholic Beverages Control Commission and local licensing authorities to suspend or revoke liquor licenses for violations of the safety standards.14Commonwealth of Massachusetts. COVID-19 Order No. 53 By New Year’s Eve 2020, the ABCC had indefinitely suspended 38 bar licenses for flagrant violations.15Alcoholic Beverages Control Commission. ABCC New Years Eve Enforcement to Combine Impaired Driving Crackdown and COVID Safety Standards Licensees still working through reinstatement or appeal from that period should treat it as an ABCC and local licensing matter, not a public health one.
Where To Get Help
The Massachusetts Attorney General’s Office issued emergency regulations and guidance throughout the pandemic on price gouging, debt collection, disability rights, and municipal authority, and much of that reference material is still available online.16Commonwealth of Massachusetts. Resources During COVID-19 For the issues most likely to catch a business out — ERC claims, grant taxability, and the data privacy obligations attached to employee health records — a qualified attorney or tax professional familiar with both Massachusetts and federal law is the reliable call.