How to Record Employee Retention Credit in QuickBooks

Are you wondering how to implement the employee retention credit in QuickBooks Online? As a subscriber to the QuickBooks Online (QBO) payroll community, our accounting services team has prepared a guide to help you implement the employer retention credit (ERC) in your payroll software. The ERC is requested in federal payroll tax returns (Form 94), depending on the quarter in which the payroll costs were paid. Organizations that use third-party payroll providers, such as QBO, should take steps to implement this credit once they determine their eligibility. The employee retention credit is a positive step in alleviating the coronavirus pandemic, and it is fully refundable.

It is equivalent to 50% of qualifying salaries and the allowable expenses of the qualified health plan are also included. The ERC was created under the CARES Act to help companies that have been adversely affected by COVID-19 retain their employees. To record the employee retention credit in QuickBooks, you must first determine if you meet the recognition criteria. IAS 20 allows you to record and present the gross amount as other income or to offset the credit with related payroll expenses.

Every quarter, when a company is reasonably certain that it meets the recognition criteria, it records an account receivable and other net income or expenses. Once you have determined that the conditions have been met, you can recognize the employee retention credit as income for that period. Companies can record receivables for credits that they are eligible for but have not yet received, or debts for credits received before incurring related payroll costs. The Employee Retention Credit (ERC) can be valuable for employers who are not eligible to receive the Paycheck Protection Program (PPP) loan or who have chosen not to receive it.

However, it is important to understand when credit should be recognized as income and the appropriate accounting treatment and disclosures regarding credit recognition. If you are eligible for the ERC, our accounting services team can help you configure your payroll software to accept and track credit “in real time”. We can also provide guidance on when and how to recognize income from the employee retention credit.