Congress has passed several different programs to keep people employed when companies were dealing with the impacts of COVID., such as the Employee Retention Credit (ERC). The ERC was originally introduced under the CARES Act, but the Consolidated Appropriations Act signed on December 27, 2020 made some amendments to it, that expanded eligibility to more contractors. The ERC is a fully refundable payroll tax credit for eligible employers up to a maximum of $5,000 for each employee in 2020 or $7,000 per employee per quarter from January to September 2021.
Many contractors have received employee retention credits over the past year and half or are in the process of receiving employee retention credits. Because these are credits and not loans, they don’t fall under Accounting Standards Codification (ASC) 470, Debt, which was one of the accounting options for PPP program loans. These credits also have nothing to do with income taxes because they are payroll tax credits, as such the ERC does not fall under ASC 740, Income Taxes.
Since there are not specific guidance for contractors to determine how to account for the ERC, we have provided guidance below for two options that are available:
- Treat as a conditional contribution under FASB ASC 958-605, Revenue Recognition under Not-for-Profit guidance.
- Treat proceeds as a grant under International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosures of Government Assistance
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