Accounting for Employee Retention Credits

Employee Retetion Credits (ERCs) were established by the Coronavirus Aid, Relief and Economic Security (CARES) Act, P.L. 116-136, in March of 2020 to help businesses retain employees. Since their creation, many non-profit and for-profit organizations have used ERCs to receive federal funding to help offset the negative financial effects of the pandemic.

If your organization received federal funding through ERCs, you must account for these funds in your financial statements. Luckily, there are numerous resources available to guide your organization through this reporting process. Non-profit organizations should comply with the revenue recognition guidance in ASC subtopic 958-605, while for-profit organizations should refer to ASC subtopic 450-30, ASC subtopic 958-605 and IAS 20.

Even with guidance from a variety of resources, accounting for ERCs can get tricky. It can be confusing to know which model to apply to your reporting, and if that model must be consistent with that for reporting Payment Protection Program (PPP) loans.

SST Accountants & Consultants encourages you to contact an expert to help ensure that your organization chooses a suitable accounting model, accurately reports the timing of revenue recognition and makes appropriate disclosures in financial statements.

If your organization is in need of additional financial support due to COVID-19, it’s not too late to apply for ERCs. Contact the experts at SST today to help walk you through the application process.

For additional information on Employee Retention Credits and reporting them in your financial statements, refer to this article from the Journal of Accountancy.