Disaster Employee Retention Credits

What is D-ERC Program?

Recent natural disasters, such as Hurricanes Milton and Helene, have devastated businesses and communities in Florida, Georgia, South Carolina, and North Carolina. These states have been declared disaster areas. To help businesses recover, the federal government has created the Disaster Employee Retention Credit (D-ERC) program.

D-ERC Program Incentives

The D-ERC program aims to encourage businesses to keep their employees on payroll during natural disasters that disrupt operations. By offering tax credits, the program helps businesses maintain operations, avoid layoffs, and support economic recovery in affected areas.

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Who’s Eligible for D-ERC?

Employers must meet the following criteria to be eligible for D-ERC:

1. The business must be located in a federally declared disaster area.
2. The employer must have experienced significant operational disruption due to the disaster. This can include physical damage to the business premises or inability to operate due to mandatory evacuations or loss of utilities.
3. The employer must have retained employees during the period of disaster-related shutdown or significant decline in operations.

Businesses of all types are potentially eligible for D-ERC including: restaurants, golf courses, healthcare providers, manufacturing, warehousing, professional services, and more.

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The maximum allowable credit under the D-ERC program is $2,400 per eligible employee. This amount is calculated based on 40% of the first $6,000 of qualified wages paid to each employee during the period the business was affected by the disaster.

Calculating D-ERC Credits is Simple

1. Identify the wages paid to each eligible employee during the period of disaster impact. Qualified wages include regular wages, bonuses, and other compensation.
2. Apply the 40% credit percentage to the first $6,000 of qualified wages per employee.

For example, if an eligible employee earned $5,000 during the disaster period, the credit would be 40% of $5,000, resulting in a $2,000 credit for that employee. If an employee earned $7,000, the credit would be 40% of the capped amount of $6,000, resulting in a $2,400 credit.

Refundable Credits
A key benefit of the D-ERC program is that the credits are refundable. This means that if the credit amount is more than the employer’s total tax liability, the difference will be refunded to the employer. This ensures that businesses receive the full financial benefit of the program, even if their tax liability is minimal.