For-profit organizations can apply for the Employee Retention Tax Credit (ERTC) as a state grant using subfield 958-605 of the ASC (subtopic 958-60) or IAS 20 as a guide (IAS 20). If your company obtained a Paycheck Protection Program (PPP) loan and used subfield 958-605 or IAS 20, the ERTC should be managed in the same way. One factor that complicates the accounting of ERTC is the time to apply for and receive credit. 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. An entity can recognize income from the Employee Retention Credit (ERC) in the period in which it determines that the conditions have been substantially met, which will require an evaluation to determine if the credit application process is more than an administrative obstacle to receiving the credits or just an administrative obstacle to receiving the credits.
Once the entity has determined that the conditions have been met, it can recognize the Employee Retention Credit as income for that period. However, institutions should remember that their request for credit could be denied even if the institution believes that it has met the terms of the program. When it comes to recording ERTC, there are several steps that must be taken. First, organizations must determine if they are eligible for ERTC. This includes determining if they meet all of the criteria set forth by the IRS.
Once eligibility is established, organizations must then calculate their ERTC amount. This includes calculating their average monthly payroll costs and their total number of employees. Once these calculations are complete, organizations must then apply for ERTC. This involves submitting an application to their state government or local tax authority. The application must include all of the necessary information and documentation required by the IRS.
After submitting their application, organizations must then wait for approval from their state government or local tax authority. Once approved, organizations must then record their ERTC in their financial statements. This involves recording a receivable or debt depending on when they received their credit. If they received their credit before incurring related payroll costs, they must record a debt. If they received their credit after incurring related payroll costs, they must record a receivable.
Organizations should also remember to adjust their income statement to reflect any changes in their ERTC amount. Recording ERTC can be complicated and time consuming. However, it is important for organizations to understand how to properly record ERTC in order to maximize their tax savings and ensure compliance with IRS regulations. By following these steps and consulting with a qualified tax professional, organizations can ensure that they are properly recording ERTC.