How Does the Employee Retention Tax Credit (ERTC) Impact Your ICS?

By: Donna Dominguez and Deirdre Bond

At a glance

• The main takeaway: Government contractors are required to show in the Incurred Cost Submission, or ICS, if they received an Employee Retention Tax Credit (ERTC) in 2020 or 2021. However, the Government may not be entitled to repayment of the full ERC credit. This is true even if your company has 100% cost type contracts.
• Impact on your business: Confusion exists on how to do this since the Government has not yet published official guidance on how to show the ERC in the ICS.
• Next steps: Aprio has discussed our approach with Defense Contract Audit Agency (DCAA) policy makers and is qualified to assist with your company’s ERC  & ICS situation.

Connect with Aprio today for assistance efficiently completing your Incurred Cost Submissions.

The full story:

Government contractors that received an Employee Retention Tax Credit (ERC or ERTC) for 2020 or 2021 are required to show this in the Incurred Cost Submission (ICS.) Many questions can arise around the application of the ERTC tax credit.

Adding to the difficulty is the fact that the government has not published official guidance on how to show the ERTC in the ICS.

How does the ERTC impact Incurred Cost Submission for Government contractors?

The ICS is the annual report of contract costs that all contractors are required to submit if they hold a Prime or Subcontract containing FAR Clause 52.216-7 Allowable Cost and Payment. Confusion can arise around:

• Which fiscal year submission does ERC credit get applied to?
• Where do I apply the ERTC credit?
• Is it worth getting the ETRC or will I be passing it all back to the Government?
• Which contracts are impacted by the ERTC credit? Will all contracts be affected or just Cost Type contracts?
• How do I repay the ETRC credit to the government?

These are questions Aprio’s team has helped answer for clients. Our experience enables our team to provide clear answers for government contractors.

What is the ERTC credit based on?

The ERTC is based on many factors, none of which are specifically claimed in the ICS. However, a portion of the tax credit does get applied back on the ICS per FAR 31.205-5 Credits. As such, the Government may not be entitled to repayment of the full credit. This is true even if your company has 100% cost type contracts. However, the Government does receive a portion of it.

It’s not too late!

We have discussed our approach with Defense Contract Audit Agency (DCAA) policy makers and are qualified to assist with your company’s preparation of your annual ICS.

Our team has successfully worked with clients to prepare and defend their ICS for many years.

Related Resources/Assets/Aprio.com articles/pages

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Is our Company Required to File an Incurred Cost Submission?

Solutions for Government Contractors

Connect with Aprio now for help preparing your Incurred Cost Submission.