Should Employers Record Employee Retention Credit as Receivables?

The Employee Retention Credit (ERC) was established under the CARES Act to help businesses that have been adversely affected by COVID-19 retain their employees. This program provides eligible employers with per-employee credits based on qualified wages and health insurance benefits paid. However, the accounting of ERC is complicated due to the time it takes to apply for and receive credit. Generally Accepted Accounting Principles (GAAP) do not provide specific guidance for ERC accounting, as it is similar to a government grant, which is an issue not addressed by GAAP for a for-profit entity.

As a result, a for-profit entity must use other accounting guidelines. When it comes to recognizing credit as income, it is important to understand the appropriate accounting treatment and disclosures regarding credit recognition. 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. If your bank has taken advantage of the ERC program, it is essential to be aware of when credit should be recorded as income.

This will help ensure that your business is compliant with all applicable accounting regulations and that you are taking full advantage of the ERC program.