diff --git a/src/Module.zig b/src/Module.zig
index a9aa01a7fca1..75180c89c109 100644
--- a/src/Module.zig
+++ b/src/Module.zig
@@ -759,33 +759,33 @@ pub const Scope = struct {
         instructions: ArrayListUnmanaged(*Inst),
         /// Points to the arena allocator of DeclAnalysis
         arena: *Allocator,
-        label: Label = Label.none,
+        label: ?Label = null,
+        inlining: ?Inlining,
         is_comptime: bool,
 
-        pub const Label = union(enum) {
-            none,
-            /// This `Block` maps a block ZIR instruction to the corresponding
-            /// TZIR instruction for break instruction analysis.
-            breaking: struct {
-                zir_block: *zir.Inst.Block,
-                merges: Merges,
-            },
-            /// This `Block` indicates that an inline function call is happening
-            /// and return instructions should be analyzed as a break instruction
-            /// to this TZIR block instruction.
-            inlining: struct {
-                /// We use this to count from 0 so that arg instructions know
-                /// which parameter index they are, without having to store
-                /// a parameter index with each arg instruction.
-                param_index: usize,
-                casted_args: []*Inst,
-                merges: Merges,
-            },
+        /// This `Block` maps a block ZIR instruction to the corresponding
+        /// TZIR instruction for break instruction analysis.
+        pub const Label = struct {
+            zir_block: *zir.Inst.Block,
+            merges: Merges,
+        };
 
-            pub const Merges = struct {
-                results: ArrayListUnmanaged(*Inst),
-                block_inst: *Inst.Block,
-            };
+        /// This `Block` indicates that an inline function call is happening
+        /// and return instructions should be analyzed as a break instruction
+        /// to this TZIR block instruction.
+        pub const Inlining = struct {
+            caller: ?*Fn,
+            /// We use this to count from 0 so that arg instructions know
+            /// which parameter index they are, without having to store
+            /// a parameter index with each arg instruction.
+            param_index: usize,
+            casted_args: []*Inst,
+            merges: Merges,
+        };
+
+        pub const Merges = struct {
+            results: ArrayListUnmanaged(*Inst),
+            block_inst: *Inst.Block,
         };
 
         /// For debugging purposes.
@@ -1093,6 +1093,7 @@ fn astGenAndAnalyzeDecl(self: *Module, decl: *Decl) !bool {
                 .decl = decl,
                 .instructions = .{},
                 .arena = &decl_arena.allocator,
+                .inlining = null,
                 .is_comptime = false,
             };
             defer block_scope.instructions.deinit(self.gpa);
@@ -1281,6 +1282,7 @@ fn astGenAndAnalyzeDecl(self: *Module, decl: *Decl) !bool {
                 .decl = decl,
                 .instructions = .{},
                 .arena = &decl_arena.allocator,
+                .inlining = null,
                 .is_comptime = true,
             };
             defer block_scope.instructions.deinit(self.gpa);
@@ -1346,6 +1348,7 @@ fn astGenAndAnalyzeDecl(self: *Module, decl: *Decl) !bool {
                     .decl = decl,
                     .instructions = .{},
                     .arena = &gen_scope_arena.allocator,
+                    .inlining = null,
                     .is_comptime = true,
                 };
                 defer inner_block.instructions.deinit(self.gpa);
@@ -1466,6 +1469,7 @@ fn astGenAndAnalyzeDecl(self: *Module, decl: *Decl) !bool {
                 .decl = decl,
                 .instructions = .{},
                 .arena = &analysis_arena.allocator,
+                .inlining = null,
                 .is_comptime = true,
             };
             defer block_scope.instructions.deinit(self.gpa);
@@ -1843,23 +1847,24 @@ pub fn analyzeFnBody(self: *Module, decl: *Decl, func: *Fn) !void {
         .decl = decl,
         .instructions = .{},
         .arena = &arena.allocator,
+        .inlining = null,
         .is_comptime = false,
     };
     defer inner_block.instructions.deinit(self.gpa);
 
     func.state = .in_progress;
-    log.debug("set {} to in_progress\n", .{decl.name});
+    log.debug("set {s} to in_progress\n", .{decl.name});
 
     try zir_sema.analyzeBody(self, &inner_block.base, func.zir);
 
     const instructions = try arena.allocator.dupe(*Inst, inner_block.instructions.items);
     func.state = .success;
     func.body = .{ .instructions = instructions };
-    log.debug("set {} to success\n", .{decl.name});
+    log.debug("set {s} to success\n", .{decl.name});
 }
 
 fn markOutdatedDecl(self: *Module, decl: *Decl) !void {
-    log.debug("mark {} outdated\n", .{decl.name});
+    log.debug("mark {s} outdated\n", .{decl.name});
     try self.comp.work_queue.writeItem(.{ .analyze_decl = decl });
     if (self.failed_decls.remove(decl)) |entry| {
         entry.value.destroy(self.gpa);
@@ -3050,11 +3055,20 @@ fn failWithOwnedErrorMsg(self: *Module, scope: *Scope, src: usize, err_msg: *Com
         },
         .block => {
             const block = scope.cast(Scope.Block).?;
-            if (block.func) |func| {
-                func.state = .sema_failure;
+            if (block.inlining) |*inlining| {
+                if (inlining.caller) |func| {
+                    func.state = .sema_failure;
+                } else {
+                    block.decl.analysis = .sema_failure;
+                    block.decl.generation = self.generation;
+                }
             } else {
-                block.decl.analysis = .sema_failure;
-                block.decl.generation = self.generation;
+                if (block.func) |func| {
+                    func.state = .sema_failure;
+                } else {
+                    block.decl.analysis = .sema_failure;
+                    block.decl.generation = self.generation;
+                }
             }
             self.failed_decls.putAssumeCapacityNoClobber(block.decl, err_msg);
         },
@@ -3414,6 +3428,7 @@ pub fn addSafetyCheck(mod: *Module, parent_block: *Scope.Block, ok: *Inst, panic
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime,
     };
     defer fail_block.instructions.deinit(mod.gpa);
diff --git a/src/main.zig b/src/main.zig
index 247f8327f0f9..32eebff38c4c 100644
--- a/src/main.zig
+++ b/src/main.zig
@@ -1794,7 +1794,7 @@ fn buildOutputType(
     };
 
     updateModule(gpa, comp, zir_out_path, hook) catch |err| switch (err) {
-        error.SemanticAnalyzeFail => process.exit(1),
+        error.SemanticAnalyzeFail => if (!watch) process.exit(1),
         else => |e| return e,
     };
     try comp.makeBinFileExecutable();
diff --git a/src/zir_sema.zig b/src/zir_sema.zig
index 01cbf9800741..7c790122e576 100644
--- a/src/zir_sema.zig
+++ b/src/zir_sema.zig
@@ -576,13 +576,10 @@ fn analyzeInstCompileError(mod: *Module, scope: *Scope, inst: *zir.Inst.UnOp) In
 
 fn analyzeInstArg(mod: *Module, scope: *Scope, inst: *zir.Inst.Arg) InnerError!*Inst {
     const b = try mod.requireFunctionBlock(scope, inst.base.src);
-    switch (b.label) {
-        .none, .breaking => {},
-        .inlining => |*inlining| {
-            const param_index = inlining.param_index;
-            inlining.param_index += 1;
-            return inlining.casted_args[param_index];
-        },
+    if (b.inlining) |*inlining| {
+        const param_index = inlining.param_index;
+        inlining.param_index += 1;
+        return inlining.casted_args[param_index];
     }
     const fn_ty = b.func.?.owner_decl.typed_value.most_recent.typed_value.ty;
     const param_index = b.instructions.items.len;
@@ -620,6 +617,7 @@ fn analyzeInstLoop(mod: *Module, scope: *Scope, inst: *zir.Inst.Loop) InnerError
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime,
     };
     defer child_block.instructions.deinit(mod.gpa);
@@ -642,7 +640,8 @@ fn analyzeInstBlockFlat(mod: *Module, scope: *Scope, inst: *zir.Inst.Block, is_c
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
-        .label = .none,
+        .label = null,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime or is_comptime,
     };
     defer child_block.instructions.deinit(mod.gpa);
@@ -680,18 +679,18 @@ fn analyzeInstBlock(mod: *Module, scope: *Scope, inst: *zir.Inst.Block, is_compt
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
-        .label = Scope.Block.Label{
-            .breaking = .{
-                .zir_block = inst,
-                .merges = .{
-                    .results = .{},
-                    .block_inst = block_inst,
-                },
+        // TODO @as here is working around a stage1 miscompilation bug :(
+        .label = @as(?Scope.Block.Label, Scope.Block.Label{
+            .zir_block = inst,
+            .merges = .{
+                .results = .{},
+                .block_inst = block_inst,
             },
-        },
+        }),
+        .inlining = parent_block.inlining,
         .is_comptime = is_comptime or parent_block.is_comptime,
     };
-    const merges = &child_block.label.breaking.merges;
+    const merges = &child_block.label.?.merges;
 
     defer child_block.instructions.deinit(mod.gpa);
     defer merges.results.deinit(mod.gpa);
@@ -705,7 +704,7 @@ fn analyzeBlockBody(
     mod: *Module,
     scope: *Scope,
     child_block: *Scope.Block,
-    merges: *Scope.Block.Label.Merges,
+    merges: *Scope.Block.Merges,
 ) InnerError!*Inst {
     const parent_block = scope.cast(Scope.Block).?;
 
@@ -895,19 +894,20 @@ fn analyzeInstCall(mod: *Module, scope: *Scope, inst: *zir.Inst.Call) InnerError
             .decl = scope.decl().?,
             .instructions = .{},
             .arena = scope.arena(),
-            .label = Scope.Block.Label{
-                .inlining = .{
-                    .param_index = 0,
-                    .casted_args = casted_args,
-                    .merges = .{
-                        .results = .{},
-                        .block_inst = block_inst,
-                    },
+            .label = null,
+            // TODO @as here is working around a stage1 miscompilation bug :(
+            .inlining = @as(?Scope.Block.Inlining, Scope.Block.Inlining{
+                .caller = b.func,
+                .param_index = 0,
+                .casted_args = casted_args,
+                .merges = .{
+                    .results = .{},
+                    .block_inst = block_inst,
                 },
-            },
+            }),
             .is_comptime = is_comptime_call,
         };
-        const merges = &child_block.label.inlining.merges;
+        const merges = &child_block.inlining.?.merges;
 
         defer child_block.instructions.deinit(mod.gpa);
         defer merges.results.deinit(mod.gpa);
@@ -1416,6 +1416,7 @@ fn analyzeInstSwitchBr(mod: *Module, scope: *Scope, inst: *zir.Inst.SwitchBr) In
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime,
     };
     defer case_block.instructions.deinit(mod.gpa);
@@ -1955,6 +1956,7 @@ fn analyzeInstCondBr(mod: *Module, scope: *Scope, inst: *zir.Inst.CondBr) InnerE
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime,
     };
     defer true_block.instructions.deinit(mod.gpa);
@@ -1966,6 +1968,7 @@ fn analyzeInstCondBr(mod: *Module, scope: *Scope, inst: *zir.Inst.CondBr) InnerE
         .decl = parent_block.decl,
         .instructions = .{},
         .arena = parent_block.arena,
+        .inlining = parent_block.inlining,
         .is_comptime = parent_block.is_comptime,
     };
     defer false_block.instructions.deinit(mod.gpa);
@@ -1995,40 +1998,34 @@ fn analyzeInstRet(mod: *Module, scope: *Scope, inst: *zir.Inst.UnOp) InnerError!
     const operand = try resolveInst(mod, scope, inst.positionals.operand);
     const b = try mod.requireFunctionBlock(scope, inst.base.src);
 
-    switch (b.label) {
-        .inlining => |*inlining| {
-            // We are inlining a function call; rewrite the `ret` as a `break`.
-            try inlining.merges.results.append(mod.gpa, operand);
-            return mod.addBr(b, inst.base.src, inlining.merges.block_inst, operand);
-        },
-        .none, .breaking => {
-            return mod.addUnOp(b, inst.base.src, Type.initTag(.noreturn), .ret, operand);
-        },
+    if (b.inlining) |*inlining| {
+        // We are inlining a function call; rewrite the `ret` as a `break`.
+        try inlining.merges.results.append(mod.gpa, operand);
+        return mod.addBr(b, inst.base.src, inlining.merges.block_inst, operand);
     }
+
+    return mod.addUnOp(b, inst.base.src, Type.initTag(.noreturn), .ret, operand);
 }
 
 fn analyzeInstRetVoid(mod: *Module, scope: *Scope, inst: *zir.Inst.NoOp) InnerError!*Inst {
     const b = try mod.requireFunctionBlock(scope, inst.base.src);
-    switch (b.label) {
-        .inlining => |*inlining| {
-            // We are inlining a function call; rewrite the `retvoid` as a `breakvoid`.
-            const void_inst = try mod.constVoid(scope, inst.base.src);
-            try inlining.merges.results.append(mod.gpa, void_inst);
-            return mod.addBr(b, inst.base.src, inlining.merges.block_inst, void_inst);
-        },
-        .none, .breaking => {
-            if (b.func) |func| {
-                // Need to emit a compile error if returning void is not allowed.
-                const void_inst = try mod.constVoid(scope, inst.base.src);
-                const fn_ty = func.owner_decl.typed_value.most_recent.typed_value.ty;
-                const casted_void = try mod.coerce(scope, fn_ty.fnReturnType(), void_inst);
-                if (casted_void.ty.zigTypeTag() != .Void) {
-                    return mod.addUnOp(b, inst.base.src, Type.initTag(.noreturn), .ret, casted_void);
-                }
-            }
-            return mod.addNoOp(b, inst.base.src, Type.initTag(.noreturn), .retvoid);
-        },
+    if (b.inlining) |*inlining| {
+        // We are inlining a function call; rewrite the `retvoid` as a `breakvoid`.
+        const void_inst = try mod.constVoid(scope, inst.base.src);
+        try inlining.merges.results.append(mod.gpa, void_inst);
+        return mod.addBr(b, inst.base.src, inlining.merges.block_inst, void_inst);
+    }
+
+    if (b.func) |func| {
+        // Need to emit a compile error if returning void is not allowed.
+        const void_inst = try mod.constVoid(scope, inst.base.src);
+        const fn_ty = func.owner_decl.typed_value.most_recent.typed_value.ty;
+        const casted_void = try mod.coerce(scope, fn_ty.fnReturnType(), void_inst);
+        if (casted_void.ty.zigTypeTag() != .Void) {
+            return mod.addUnOp(b, inst.base.src, Type.initTag(.noreturn), .ret, casted_void);
+        }
     }
+    return mod.addNoOp(b, inst.base.src, Type.initTag(.noreturn), .retvoid);
 }
 
 fn floatOpAllowed(tag: zir.Inst.Tag) bool {
@@ -2048,16 +2045,12 @@ fn analyzeBreak(
 ) InnerError!*Inst {
     var opt_block = scope.cast(Scope.Block);
     while (opt_block) |block| {
-        switch (block.label) {
-            .none => {},
-            .breaking => |*label| {
-                if (label.zir_block == zir_block) {
-                    try label.merges.results.append(mod.gpa, operand);
-                    const b = try mod.requireFunctionBlock(scope, src);
-                    return mod.addBr(b, src, label.merges.block_inst, operand);
-                }
-            },
-            .inlining => unreachable, // Invalid `break` ZIR inside inline function call.
+        if (block.label) |*label| {
+            if (label.zir_block == zir_block) {
+                try label.merges.results.append(mod.gpa, operand);
+                const b = try mod.requireFunctionBlock(scope, src);
+                return mod.addBr(b, src, label.merges.block_inst, operand);
+            }
         }
         opt_block = block.parent;
     } else unreachable;
diff --git a/test/stage2/test.zig b/test/stage2/test.zig
index 79f5c3a73e8a..8d3fac476096 100644
--- a/test/stage2/test.zig
+++ b/test/stage2/test.zig
@@ -1379,4 +1379,55 @@ pub fn addCases(ctx: *TestContext) !void {
             \\}
         , &[_][]const u8{":2:9: error: variable of type '@Type(.Null)' must be const or comptime"});
     }
+
+    {
+        var case = ctx.exe("compile error in inline fn call fixed", linux_x64);
+        case.addError(
+            \\export fn _start() noreturn {
+            \\    var x: usize = 3;
+            \\    const y = add(10, 2, x);
+            \\    exit(y - 6);
+            \\}
+            \\
+            \\inline fn add(a: usize, b: usize, c: usize) usize {
+            \\    if (a == 10) @compileError("bad");
+            \\    return a + b + c;
+            \\}
+            \\
+            \\fn exit(code: usize) noreturn {
+            \\    asm volatile ("syscall"
+            \\        :
+            \\        : [number] "{rax}" (231),
+            \\          [arg1] "{rdi}" (code)
+            \\        : "rcx", "r11", "memory"
+            \\    );
+            \\    unreachable;
+            \\}
+        , &[_][]const u8{":8:18: error: bad"});
+
+        case.addCompareOutput(
+            \\export fn _start() noreturn {
+            \\    var x: usize = 3;
+            \\    const y = add(1, 2, x);
+            \\    exit(y - 6);
+            \\}
+            \\
+            \\inline fn add(a: usize, b: usize, c: usize) usize {
+            \\    if (a == 10) @compileError("bad");
+            \\    return a + b + c;
+            \\}
+            \\
+            \\fn exit(code: usize) noreturn {
+            \\    asm volatile ("syscall"
+            \\        :
+            \\        : [number] "{rax}" (231),
+            \\          [arg1] "{rdi}" (code)
+            \\        : "rcx", "r11", "memory"
+            \\    );
+            \\    unreachable;
+            \\}
+        ,
+            "",
+        );
+    }
 }