Employee Retention Credit

Story courtesy of the Nebraska Business Inc.

The CARES Act that was signed into law on March 27, 2020 included an Employee Retention Credit (ERC) for qualified employers.  This credit allows for a 50% refundable payroll tax credit of up to $10,000 of qualified wages per employee ($5,000 maximum credit per employee). 

The main qualification to be eligible for the credit is a decrease in gross sales by at least 50% in one calendar quarter of 2020 versus the same calendar quarter of 2019.  This could easily happen with timing of grain or livestock sales by deferring income into another quarter.  When we prepare year end payroll tax forms, we will likely need up to date accounting records to compare quarters for eligibility.

As the law is now, if you took a PPP loan you are not eligible for this employee retention credit.  However, part of the stimulus package being debated could change things.  This would include being eligible for the PPP and ERC together as well as larger credit amounts and less than 50% reduction in sales in the comparative quarters. 

Payroll Tax Cut

You may have heard about the President signing an executive order for a payroll tax cut (holiday, deferral, etc.) as it is known by many different names.  This takes affect September 1 and ends December 31.  The first thing to know about this provision, as written, this is only a deferral.  Therefore, consider this a short term, interest free loan that will have to be paid back in January.  This is only a deferral of the employee’s social security tax (6.2%), nothing on the employer side.  There is much unknown about how all this will be finalized.  It is not known if this will be optional to not withhold the 6.2%, how the payback will happen, what counts as compensation for this deferral, and many more questions.  The President has said his goal is to make the deferral a permanent cut for the four months, meaning it would not have to be paid back.  However, there is no way to know if and when this will happen.  At this point, we suggest withholding as normal until it is determined if the deferral is required.  This will reduce the burden of repayment on both employee and employer in January.