Employee retention credit

A federal tax credit for businesses affected by a natural disaster.

Karen M. Field

Karen M. Field

Senior Director, RSM US LLP

Congress recently enacted legislation that provides a federal income tax credit to certain employers who continue to pay their employees during periods that their place of business is inoperable due to the effects of one of the three recent hurricanes.

 

The credit, known as the Employee Retention Credit (ERC), is a general business credit and can be carried back one year and forward 20 years.  The credit is available to employers of all sizes.

What you need to know about the ERC

What does the ERC offer?

  • 40 percent of qualified wages paid to each employee during inoperability
  • $6,000 in maximum wages; therefore, maximum credit is $2,400 per employee

     

A business is inoperable if physically inaccessible to:

  • Employees
  • Raw materials
  • Utilities
  • Customers

In order to be eligible for the credit, the employer must:

  • Have operated active trade or business in disaster area
  • Be located in a declared federal disaster zone
  • Have been inoperable after effective date of disaster
  • Not claim both the Work Opportunity Tax Credit (WOTC) and the ERC for the same employee for the same period

Helpful definitions

Hurricane disaster zone

Portion of hurricane disaster area determined by the president to warrant public assistance.

Hurricane disaster area

Area where a major disaster has been declared by the president before September 21, 2017.

Eligible employer

Employer whose principal place of business was in a disaster zone before the hurricane and became inoperable because of the hurricane.

Eligible employee

Employee whose principal place of employment was in a disaster area and the business became inoperable because of the hurricane.

Qualified wages

Wages paid by eligible employer to eligible employee on any date after the storm to January 1, 2018, during period business first became inoperable before storm to date when business resumes significant operations.


KPMG can help...

Analyze potential client locations

Assist in determining closure dates

Identify inoperable client locations

Determine when operations resumed

Identify eligible employees and calculate eligible wages

Determine no double counting of wages between ERC and WOTC

Determine process and prepare tax technical memorandums

Prepare applicable tax forms

The new employee retention credit
The employee retention credit (ERC) is a general business credit and can be carried back one year and forward 20 years. The credit is available to employers of all sizes and companies should discover if they meet the criteria for eligibility.