Employee Retention Credit for Non-Profits

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What is the employee retention credit for non-profits?

Navigating the financial challenges from recent global events has burdened many organizations, including non-profits. Fortunately, relief is available through the Employee Retention Credit (ERC), a refundable payroll tax credit designed to help eligible employers retain their staff and maintain operations during these trying times.

Key ERC Credit Takeaways You Will Learn:

  • ERC for Non-profits: Gain insight into the nuances of the Employee Retention Credit (ERC) as it relates specifically to non-profit organizations.
  • Eligibility & Calculation: Learn the specific eligibility criteria, wage types, and methods for calculating ERC applicable to non-profits.
  • Claiming Process & Deadlines: Understand the process, deadlines, and documentation requirements to effectively claim the ERC for non-profit organizations.
  • Avoiding Common Pitfalls: Become aware of frequent mistakes and issues that non-profits face when claiming the ERC, and learn how to avoid them.
  • Resources & Support: Discover a range of resources, professional services, and support networks that can assist non-profits in navigating the ERC process.

Table of Contents

Understanding The Employee Retention Credit (ERC) For Non-profits

To take advantage of the benefits provided by the Employee Retention Credit (ERC) for non-profits, it is important to understand its eligibility criteria and calculation methods and how it interacts with other relief provisions.

Eligibility Criteria And Calculation Of Credit

To qualify for the Employee Retention Credit (ERC), non-profit organizations must meet specific eligibility criteria outlined by the CARES Act. Primarily, tax-exempt non-profits affected by the COVID-19 pandemic can be eligible in two ways: they were subject to a government-ordered shutdown, full or partial shutdown, or experienced a significant decline in gross receipts during any calendar fourth quarter only.

For eligible non-profits, calculating ERC involves determining qualified wages paid by non-profit organizations to employees and applying relevant percentages based on applicable periods within the same calendar quarter in which these wages were disbursed.

In general, for taxes filed before July 1, 2020, ERC is a maximum credit equal to 50% of gross receipts of qualified wages up to $10,000 per employee for calendar quarters annually. However, recent changes under the American Rescue Plan Act expanded this credit with new calculations: it now offers a refundable tax credit of up to 70% on maximum gross receipts of $10,000 qualified wages per employee per calendar quarter through calendar quarter December 31, 2021.

Interaction With Other Relief Provisions

Non-profit organizations must know how the Employee Retention Credit (ERC) interacts with other relief provisions, particularly when navigating financial assistance during uncertain times.

One vital interaction to understand involves the Paycheck Protection Program (PPP) loans. While previously, non-profits receiving a PPP loan were ineligible for the ERC, recent changes now allow eligible employers to claim both benefits concurrently.

For example, if your non-profit organization obtained a PPP loan and claimed ERC in a specific quarter, any wages used in calculating forgiveness for your PPP loan would exclude those same calendar quarter amounts of wages from being considered qualified wages for ERC purposes.

This overlapping provision requires careful planning and recordkeeping to maximize tax credit potential without jeopardizing loan forgiveness eligibility.

Key Changes In 2021

In 2021, significant changes were implemented to the Employee Retention Credit, increasing its potential impact on non-profits. One of the most notable modifications was extending the ERC through December 31, 2021, providing additional time for organizations to benefit from this financial relief.

Another crucial change in 2021 was expanding eligibility for organizations that experienced declining gross receipts or faced government-ordered full or partial shutdown suspensions due to COVID-19 restrictions.

Moreover, businesses that began operations after February 15 can now qualify as “recovery startup businesses” and claim up to $50,000 in credits each quarter.

Benefits Of ERC For Non-profits

The ERC provides immediate financial relief for non-profits, allowing them to retain their employees and focus on their mission and goals.

Immediate Financial Relief

The Employee Retention Credit (ERC) for non-profits can provide immediate financial relief to eligible organizations. This payroll tax credit is refundable, which means that even if the non-profit does not owe any payroll taxes, it can still receive a cash refund.

For eligible employers, the ERC is equal to 50% of qualified wages paid to employees up to $10,000 per employee in the same quarter for all quarters in 2020 and up to $10,000 per employee per same quarter in 2021.

For example, a qualifying non-profit had ten employees who were paid an average salary of $30,000 from March through December 2020. The total qualified wages amount would be $300,000 ($30k x 10), and the ERC would cover half or $150k of those eligible wages, providing significant financial support during these challenging times.

Not only does it help reduce costs for payroll taxes, but it also assists with retaining valuable employees while focusing on accomplishing the organization’s mission and goals.

Capacity To Retain Employees

The Employee Retention Credit (ERC) for Non-profits can help organizations retain valuable employees. This credit can provide immediate financial relief to non-profits, allowing them to maintain their workforce during difficult times.

For example, a church may be eligible for the ERC if it experienced significant declines in donations due to the pandemic. With this credit, they can continue paying their staff and avoid laying off vital employees in delivering ministry programs and serving their congregation.

By providing immediate cash assistance through payroll tax credits, non-profits will have more capacity for employee retention even as they face new challenges caused by COVID-19 or other external factors.

Focus On Mission And Goals

Non-profits that claim the Employee Retention Credit (ERC) can experience substantial benefits beyond financial relief. One of these benefits is the ability to focus on their mission and goals without worrying about employee retention challenges.

By retaining employees, non-profits can create a stable work environment and maintain continuity in programs, services, and operations.

For example, arts and culture organizations may retain performers or curators who are critical to delivering their artistic vision; education and health service providers may keep key medical or academic staff who ensure quality care or instruction; religious and social welfare organizations may preserve community connections through long-standing personnel with trusted relationships.

Examples Of Non-profit Organizations That Can Benefit From ERC

Arts and culture organizations, education and health services providers, and many religious and social welfare organizations are among the many non-profit organizations that can benefit from the Employee Retention Credit (ERC).

Arts And Culture Organizations

Arts and culture organizations, such as museums, galleries, and theaters, heavily rely on donations and grants to fund their operations. The COVID-19 pandemic has significantly impacted these organizations, with closures of venues and cancellations of events leading to revenue loss.

However, ERC can provide much-needed relief for non-profits in this sector through tax credits.

Through this credit scheme’s help with payroll taxes, arts organizations across America can retain employees while continuing their missions during these challenging times.

Education And Health Services Providers

Education and health service providers are among the organizations that can benefit greatly from the Employee Retention Credit (ERC) for non-profits. Educational institutions, such as private schools and colleges, have had to adjust to remote learning due to COVID-19 restrictions.

Similarly, healthcare providers have worked tirelessly to provide essential services during these uncertain times.

The ERC can help education and health service providers retain valuable employees while reducing payroll tax liability. For example, schools that have experienced a significant decline in enrollment due to the pandemic can still claim the credit based on qualified wages paid to retained employees.

Healthcare facilities and religious organizations with partially suspended operations or limited group meetings may qualify for this critical relief measure.

Religious And Social Welfare Organizations

Religious and social welfare organizations can also benefit from the Employee Retention Credit (ERC) for Non-profits. These non-profits play an important role in providing essential services and social and economic security to communities, but they may face challenges due to the pandemic.

For example, some religious organizations or institutions that operate schools, charity programs, or other community outreach initiatives may qualify for the ERC if they meet certain eligibility criteria.

Social welfare organizations focusing on food banks, health clinics, counseling services, or homeless shelters may also be eligible for the credit.

Qualifying Wages And Health Plan Expenses

Qualifying wages for the ERC include all compensation paid to employees, including health plan expenses, with some limitations and exceptions based on the definition of qualified wages.

Definition, Types, And Limitations

To qualify for the Employee Retention Credit (ERC), non-profits must have experienced a significant decline in gross receipts compared to the same fourth quarter of 2019. There are two types of eligible wages, depending on whether an organization has more or fewer than 500 employees.

For those with over 500 employees, it applies only to wages paid to employees who weren’t providing services due to fully or partially-suspended operations related to COVID-19.

Those with fewer full-time employees than 500 or fewer full-time employees can use any qualified wage as long as they meet the eligibility criteria.

Limitations also exist for non-profit organizations seeking ERC benefits: The credit is limited to $5,000 per employee per year and cannot exceed the total payroll taxes owed by an eligible employer during a given quarter.

Non-profits receiving Paycheck Protection Program (PPP) loans should note that any ERC received will reduce loan forgiveness amounts.

Exceptions And Exclusions

It’s important to note that not all wages are eligible for the ERC, and some types of employers may be excluded from claiming the credit. For example, wages paid to family members of owners or certain high-level executives may be excluded from qualifying for the credit.

Additionally, if an eligible employer receives a shuttered venue grant under the Economic Aid Act, they cannot retroactively claim the ERC.

Non-profits should also remember that while both PPP loans and ERCs can provide relief for their organization during these difficult times, they cannot use both programs for the same wages.

By consulting with professionals with experience with non-profit tax law and regulations, organizations can better understand any exceptions or exclusions to determine if they qualify for this valuable payroll tax credit.

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Claiming The ERC For Non-profits

To claim the ERC, non-profits should follow specific procedures and documentation requirements, including retroactive claims for previous tax years.

Procedures, Deadlines, And Documentation Requirements

To claim the ERC for non-profits, here are the procedures, deadlines, and documentation requirements that you need to know:

1. Determine eligibility: First, ensure that your non-profit meets the eligibility criteria for the ERC. This includes having experienced a significant decline in gross receipts or being fully or partially suspended due to federal or government mandates and orders related to COVID-19.

2. Calculate qualifying wages and health plan expenses: Next, calculate your organization’s qualified wages and health plan expenses during the eligible period.

3. File necessary forms: To claim the ERC, you must file Form 941-X or Form 7200 with the IRS.

4. Documentation requirement: You should keep supporting documentation such as payroll records, employee identification records, expense records for any travel or group meetings, health care plans and retirement plans, and other financial documents that support your claim.

5. Claiming retroactively: If you were eligible for the ERC in previous quarters but did not, you can file a retroactive claim using Form 941-X to amend your prior quarterly returns.

6. Deadline to Claim: The deadline to claim the ERC is generally within three years from filing your tax return for the year you paid qualified wages.

7. Seek Professional Guidance: It’s important to work with a tax advisor or attorney who can help determine if your non-profit qualifies for this credit and guide you through each step of claiming it.

Following these procedures promptly and accurately, along with documentation requirements within deadlines, ensures that non-profits do not miss out on an opportunity to receive much-needed financial relief through ERC.

Retroactive Claims For Previous Tax Years

Non-profits that missed out on claiming the ERC for previous tax years can still apply to retroactively claim the credit. This means non-profits that have previously paid payroll taxes may be eligible for refunds based on qualified wages paid during those periods.

To do this, these organizations will need to file an amended Form 941-X or use Form 7200 to request a refund of the credit amount. This option is particularly helpful for non-profits that experienced significant declines in revenue due to COVID-19 and had to lay off employees but did not realize they could qualify for the ERC at the time.

By retroactively claiming this credit, non-profits can recover some of their past expenses and strengthen their financial position.

Filing Forms 941-X Or 7200

To claim the ERC, eligible non-profits must file Forms 941-X or 7200 with the IRS. Form 941-X is used for adjusting payroll tax returns, while Form 7200 is used for advance payment of employer credits due to COVID-19.

Non-profits can retroactively claim the credit if they missed out on claiming it in a previous quarter or a year prior.

Consulting with a tax advisor or legal counsel can help ensure that non-profits file correctly and take advantage of all available credits. By being proactive and staying up-to-date on eligibility requirements, non-profit organizations can benefit from immediate financial relief and an increased capacity to retain employees, allowing them to focus on their mission and goals.

This video will show you the employee retention credit for non-profits.

Common Mistakes Or Issues In Claiming ERC For Non-profits

Non-profits may encounter common mistakes and issues in claiming the ERC, such as incorrect calculation or claim of credit, ineligible wages or expenses, and documentation and recordkeeping requirements.

Incorrect Calculation Or Claim Of Credit

One common mistake non-profits make when claiming the ERC is an incorrect calculation or credit claim. This can happen if the non-profit miscalculates their qualified wages, includes ineligible wages or expenses, or fails to follow IRS documentation and recordkeeping requirements guidelines.

To avoid these mistakes, non-profits need to work with tax advisors or legal counsel who know the ERC regulations and can help determine their eligibility for the credit.

Non-profits should also keep accurate records of their payroll taxes and wage expenses, including any changes due to COVID-19-related disruptions such as vendor disruptions or the federal government-ordered partial shutdown(s.

Ineligible Wages Or Expenses

Non-profits need to be aware of the wages and expenses ineligible for the Employee Retention Credit (ERC). For example, qualified wages cannot include amounts paid to family members or owners of the business.

Another common mistake is including wages or expenses already used for another tax credit program, such as PPP forgiveness.

To avoid these issues and maximize your non-profit’s eligibility for the ERC, it’s best to consult with a professional tax advisor or legal counsel who can guide you through the process.

Documentation And Recordkeeping Requirements

To claim the Employee Retention Credit (ERC), non-profits must maintain adequate documentation and records. Eligible employers should be prepared to provide supporting documents demonstrating their qualification for the ERC, including evidence of a significant decline in gross receipts or partial suspension of operations due to COVID-19.

Non-profits may want to consider using payroll management software or consulting with professional advisors to ensure they keep proper documentation and maintain accurate records.

Failure to meet these requirements could result in lost credits or increased scrutiny from the federal government and agencies.

Interpreting The CARES Act And ERC For Non-profits

Understanding the implications of the CARES Act and Employee Retention Credit (ERC) for non-profits, as they can benefit from payroll tax credits and financial relief during these challenging times.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 to provide financial relief to businesses affected by the pandemic. The CARES Act included several provisions to support non-profit organizations, and recovery startup businesses, including the Employee Retention Credit (ERC).

To be eligible for the ERC, non-profits must meet specific criteria related to their gross receipts and operations. Additionally, there are limits on the number of gross receipts non-profits have and qualified wages that can be used for calculating the credit.

Overall, the CARES Act represents an opportunity for non-profits impacted by COVID-19 to receive much-needed financial support through tax credits like ERC.

Implications For Non-profit Taxation

The Employee Retention Credit (ERC) can benefit non-profit organizations, including tax-exempt entities. Non-profit taxation implications are important for tax-exempt organizations claiming the ERC.

The CARES Act guides how non-profit entities may qualify for this credit and what wages and expenses may be used as qualified wages.

For example, by taking advantage of the ERC, a non-profit organization can reduce its payroll taxes while retaining employees during challenging times. This credit could mean a non-profit can keep more funds for its mission-critical activities.

Frequently Asked Questions About ERC For Non-profits

This section will address some of the most common questions non-profits have about the ERC, such as eligibility criteria, credit calculation, qualified wages and expenses, impact on other tax credits and deductions, and deadlines for claiming the credit.

Eligibility Criteria, Calculation Of Credit, And Qualified Wages

To be eligible for the Employee Retention Credit (ERC), non-profit organizations must have experienced a significant decline in gross receipts and employment taxes or fully or partially suspended operations due to government orders related to COVID-19.

Non-profits that have received a Paycheck Protection Program (PPP) loan can still qualify for the ERC. The maximum credit amount equals 50% of qualified wages paid by eligible employers, up to a maximum credit of $10,000 per employee.

Qualified wages include salaries, tips, and certain health plan expenses from March 13, 2020, through December 31, 2021. However, wages used to calculate other payroll tax credits, like the Work Opportunity Tax Credit, cannot be counted towards ERC eligibility.

Impact On Other Tax Credits And Deductions

The Employee Retention Credit (ERC) may impact other tax credits and deductions available to non-profits. For example, if a non-profit receives the ERC, it cannot also claim the Work Opportunity Tax Credit for the same employee wages.

Additionally, any qualified wages used to calculate the ERC cannot be used for calculating other payroll-related tax credits (such as Paid Sick Leave or Paid Family Leave Credits).

However, it is important to note that while claiming the ERC may impact other tax benefits, it can still provide significant financial relief and help retain employees for eligible non-profits.

Resources And Support For Non-profit Organizations

Non-profit organizations can find valuable resources and support for navigating the ERC through IRS guidance and tools, professional services and advisories, and industry associations and networks.

IRS Guidance And Tools

The Internal Revenue Service (IRS) provides guidance and tools to help non-profits determine their eligibility for the Employee Retention Credit (ERC). Non-profits can find information on the IRS website, including FAQs, publications, and forms.

The IRS has also developed an ERC calculator to assist eligible employers in further determining eligibility and their maximum credit amount.

It’s important for small to medium-sized business owners considering claiming the ERC to understand that various IRS guidelines and tools can be used as a resource throughout the process.

These include helpful calculators, guides specific to non-profit, tax-exempt organizations, forms required for reporting calculations of credits on payroll taxes, as well as instructions on documenting qualified wages paid under certain circumstances.

Professional Services And Advisories

Non-profits may benefit from seeking professional services and advisories regarding Employee Retention Credit (ERC). Tax advisors or attorneys can help determine eligibility for the employee retention tax credit and provide guidance on making a successful claim.

They can also assist with calculating qualified wages and health plan expenses and identify any exceptions or exclusions.

Non-profits need to work with specialists with experience in tax law and non-profit accounting, especially if they have limited knowledge of tax laws.

The IRS has guided ERC claims, but consulting with an expert who understands specific issues that might affect your organization is essential.

Industry Associations And Networks

Many industry associations and networks can offer support, guidance, and resources for non-profits looking to claim Employee Retention Credit (ERC). These organizations provide knowledge about ERC eligibility requirements, documentation and recordkeeping requirements, and procedures for claiming the employee retention tax credit.

For instance, The National Council of Non-profits has been a vocal advocate for non-profit organizations throughout the pandemic. They have compiled a comprehensive guide on navigating COVID-19 relief programs like the ERC.

State-specific non-profit associations like CalNonprofits in California also provide helpful information about local regulations and guidelines around ERC claims.

Conclusion and Summary: Employee Retention Credit For Non-Profits

In conclusion, the Employee Retention Credit (ERC) provides an excellent opportunity for non-profit organizations to receive immediate financial relief and retain employees during these uncertain times.

Non-profits that meet the eligibility criteria can claim this tax credit against certain employment taxes and receive a cash refund through a payroll tax. With the ERC, non-profits can focus on their mission and goals without worrying about financial constraints.

However, it is highly recommended that non-profits consult with specialists to determine their eligibility for the ERC and avoid making common mistakes or issues in claiming it.

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Employee Retention Tax Credit (ERC / ERTC) Help: Claim Up To a $26,000 Refund Per Employee for Your Business

Disaster Loan Advisors™ can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) program, without you having to pay an excessive percentage of your hard earned ERC refund. 

DLA doesn’t charge a percent like many companies do. Our flat fee structure is fair and reasonable based on the amount of work involved. Keep More of Your Refund™ 

Depending on eligibility, business owners can receive up to $26,000 to $33,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021. 

The ERC / ERTC Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.

Schedule Your Free Employee Retention Credit Consultation to see what amount $ of employee retention tax credit your company qualifies for.

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