ERTC for Non Profits

You’re at the helm of a nonprofit and the Employee Retention Tax Credit (ERTC) can be your financial lifesaver. It’s a reward for keeping staff during tough times, but you’ve got to play by the rules.

This article unpacks the ins and outs of ERTC for Non Profits – from eligibility to claiming procedures – helping you avoid pitfalls and maximize benefits.

So, let’s unravel how you can navigate the ERTC to bolster your organization’s financial health.

Do Non-profits Qualify for the ERTC?

Despite your nonprofit’s tax-exempt status, your organization can indeed qualify for the Employee Retention Tax Credit (ERTC) if it meets certain criteria. The ERTC, first introduced through the CARES Act and later expanded by the American Rescue Plan Act, is designed to support organizations, including nonprofits, during challenging economic times.

Your non-profit qualifies for the ERTC if it had to fully or partially shut down operations due to a government order in 2020 or 2021, or if it experienced a significant reduction in gross receipts. Specifically, if your organization saw a decrease of 50% or more in 2020 compared to the same quarter in 2019, or a 20% reduction in 2021 compared to the same quarter in 2019, you may be eligible.

Keep in mind that you must have had at least one full-time employee during the eligibility period. While there are no size limits for employers wanting to claim the ERTC, larger employers can only claim wages paid to workers when they weren’t providing services due to COVID-related reasons or closures.

Don’t let misconceptions deter you. Despite not paying income taxes, nonprofits that meet these qualifications are eligible for the ERTC for any qualifying quarters of 2020 or 2021. Remember, this credit is designed to alleviate the payroll taxes that nonprofits are required to pay.

Our recommendation for ERC Tax Expert

Navigating these waters can be complex, so we would suggest you consult with a ERTC Tax Expert if you are in anyway uncertain about your eligibility or making a claim for a refund. With the right guidance, your non profit can gain considerable financial relief during these difficult times.

Clicking on the image below takes you to our recommended ERC Tax Expert. Go through the questions which are aimed at quickly finding out if you qualify for ERC or not, not everyone is eligible.

Key Facts about the ERTC for Non Profits

As you navigate the ERTC for your nonprofit, understanding certain key aspects is essential.

First, it’s vital to know the wage limits and when to claim the ERTC, as these components directly impact your credit amount.

Lastly, familiarize yourself with IRS Form 941-X, understand the interaction between ERTC and PPP loans, and remember that the ERTC is a refundable tax credit.

Wage Limits

Often, you’ll need to understand the wage limits set by the ERTC for nonprofits, which play a crucial role in determining the potential credit your organization can claim. For 2020, the ERTC has a limit of $10,000 in wages per employee per year. At 50% of those wages, the maximum credit for 2020 is $5,000 per employee.

In 2021, the rules changed. The qualified wages limit jumped to $10,000 per employee per quarter, and the credit percentage increased to 70%. This means you could claim up to $7,000 per employee per quarter, totaling $21,000 per year. For startup recovery businesses, the potential credit even rose to $28,000 per employee.

Understanding these wage limits will help you maximize your claim.

When to Claim the ERTC

Understanding these wage limits, you’re now equipped to delve into when to claim the ERTC for your nonprofit.

Here are the key points to consider:

1. The ERTC ended in 2021, but if you didn’t claim it yet and still qualify, you can do so retroactively.
2. You have a three-year window from the initial filing date of the relevant tax return or two years from the date you paid the payroll tax, whichever comes later.
3. To claim the ERTC, you’ll need to use IRS Form 941-X.
4. Even if your nonprofit received a PPP loan, you can still claim the ERTC.

IRS Form 941-X

To claim the ERTC for your nonprofit, you’ll need to familiarize yourself with IRS Form 941-X. This form allows you to amend your original quarterly tax return, Form 941, to claim the ERTC retroactively.

In terms of wage limits, the ERTC allows $10,000 per employee per year in 2020 and $10,000 per employee per quarter in 2021.

You have a three-year window from the initial filing date or two years from the date the payroll tax was paid to claim the ERTC.

Importantly, even if your nonprofit received a PPP loan, you can still claim the ERTC.

PPP Loan Recipients

Even if your nonprofit received a PPP loan, you’re not excluded from claiming the ERTC, a vital detail to remember as we delve into the key facts about the ERTC for nonprofits.

The Consolidated Appropriations Act of 2021 lifted the initial restriction, allowing PPP recipients to claim the ERTC.

Here are the key takeaways:

1. Your nonprofit can claim both PPP and ERTC, but not for the same employment costs.
2. The ERTC is a refundable tax credit, which can provide substantial financial relief.
3. To claim the ERTC, you’ll need to meet specific eligibility criteria and follow IRS guidelines.
4. Expert advice can help you navigate the complexities of these benefits and ensure you maximize your nonprofit’s financial relief and stay within the rules so you don’t get audited or fined.

Refundable Tax Credits

Let’s dive into the key facts about the ERTC, a refundable tax credit that could provide significant financial relief for your nonprofit organization.

Unlike most credits that only cover tax liabilities, the ERTC goes a step further. Any credit left after your payroll tax is dealt with becomes a cash payment from the IRS. This means you’re not just reducing costs, you’re actively generating funds for your nonprofit.

To claim this, use IRS Form 941-X within three years of the initial filing date or two years from when payroll tax was paid.

Types of Organizations Under the CAA

Under the Consolidated Appropriations Act (CAA) of 2021, a broader range of nonprofits can now claim the Employee Retention Tax Credit (ERTC). This includes healthcare organizations, public colleges and universities, and Congress-chartered organizations. These changes provide more opportunities for these organizations to access significant financial relief in these challenging times.

Here’s a brief look at these organizations:

1. Healthcare Organizations: Nonprofit hospitals, clinics, and other healthcare providers are eligible for the ERTC.
2. Public Colleges and Universities: These institutions can claim the ERTC, providing much-needed support to the education sector.
3. Congress-chartered Organizations: Nonprofits chartered by Congress, such as certain veterans’ organizations, also qualify for the ERTC.
4. Other Nonprofits: The CAA has widened the ERTC eligibility, allowing a greater number of nonprofits to benefit eg Churches.

How Does the Employee Retention Credit for Churches and Non- Profits Work?

As a nonprofit or church, navigating the Employee Retention Credit (ERTC) can be simplified into three crucial steps.

First, you’ll need to determine your organization’s eligibility.

Next, calculate potential credits based on qualified wages.

Determine Eligibility

To understand the Employee Retention Credit (ERTC) eligibility for churches and nonprofits, you’ll need to consider two main factors:

1. Government mandates: If your nonprofit or church had operations suspended due to government orders, you may qualify for the ERTC. This means that if your organization was forced to close or limit its activities due to COVID-19-related regulations, you may be eligible for the credit.
2. Gross Receipts Test: The second factor to consider is the Gross Receipts Test. If your nonprofit or church experienced a significant decline in gross receipts compared to a similar period in 2019, you may also qualify for the ERTC. The specific percentage of decline required to meet this test varies depending on the time period you are comparing.

Government Mandates

If your nonprofit organization had to shut down partially or entirely due to governmental orders during the pandemic, you might be eligible for the Employee Retention Tax Credit (ERTC).

To determine eligibility:

1. Assess if your organization had full or partial shutdowns.
2. Evaluate if these disruptions were due to government mandates.
3. Consider the impact on your normal operations.
4. Document these disruptions for ERTC eligibility proof.

Gross Receipts Test

You’ll need to conduct a Gross Receipts Test to determine your nonprofit’s eligibility for the Employee Retention Tax Credit (ERTC).

For 2020, gross receipts less than 50% of the same quarter in 2019 indicate eligibility.

For 2021, receipts less than 80% of the same 2019 quarter meet the criteria.

Calculate Credits

Calculating your potential Employee Retention Tax Credit involves understanding that the guidelines differ for 2020 and 2021. Also noting that wages paid for using a PPP loan cannot be included, no double dipping.

Here are four steps to help you calculate your ERTC:

1. Identify qualifying wages paid to employees between March 12, 2020, and September 30, 2021. It is important to note that wages paid to ministers and non-participating church employees cannot be included.
2. For 2020, compute 50% of the first $10,000 of qualified wages per employee. Each employee could yield a maximum credit of $5,000.
3. In 2021, calculate 70% of the first $10,000 of qualified wages per employee per quarter. The maximum credit per employee is $21,000 for 2021.
4. Remember, these calculations apply to organizations with 100 or fewer employees in 2020, and 500 or fewer in 2021.

File for ERTC

When filing for the Employee Retention Tax Credit (ERTC), it’s essential to understand the specific processes and eligibility criteria applicable to churches and nonprofits.

Even though the ERTC program officially ended on September 30, 2021, your organization can still retroactively claim for eligible quarters up to three years after filing Form 941. However, don’t wait too long because the government may stop awarding credits when the funds run out.

We suggest consulting with ERTC tax experts to help you maximize your claims and ensure you have the proper documentation for approval.

Remember, if your organization reduced withholdings in the fourth quarter of 2021, you must pay those taxes back.

Understanding and navigating these intricacies can ensure you benefit fully from the ERTC.

Benefits Of ERC For Non-profits

The Employee Retention Credit (ERC) offers significant benefits for non-profits like yours.

Firstly, it provides immediate financial relief, which is crucial during challenging times.

Additionally, it enables you to retain employees, allowing you to stay focused on your mission and goals.

Financial Relief

While you’re navigating the financial challenges of running a non-profit during these uncertain times, it’s crucial to understand that the Employee Retention Tax Credit (ERTC) can provide financial relief to your organization.

1. Reduced Payroll Taxes: The ERTC can lower your payroll tax obligation significantly, saving your non-profit thousands of dollars.
2. Cash Refunds: The ERTC is refundable. If you don’t owe any payroll taxes, you’ll receive a cash refund, providing an immediate cash injection.
3. Employee Retention: The credit assists in retaining your valuable employees, vital for maintaining operations.
4. Mission Focus: With financial relief from the ERTC, you can concentrate on your organization’s mission and goals, rather than worrying about financial survival.

Capacity To Retain Employees

In these challenging times, you’ll find that the ERC offers your non-profit the financial capacity to retain essential employees, even when revenue is constrained. This credit is a lifeline, providing cash through payroll tax credits, ensuring you can continue to pay your staff, and avoid layoffs.

For example, if your organization, like a church, has seen donations decrease due to the pandemic, the ERC allows you to maintain your vital ministry programs and services.

The ERC isn’t just a temporary fix, but a tool to help your non-profit navigate through external challenges like COVID-19. By increasing your capacity for employee retention, it strengthens your organization’s resilience, ensuring you can continue serving your community effectively.

Focus On Mission And Goals

By bolstering your organization’s financial stability, the ERC allows you to concentrate on your mission and goals, rather than getting bogged down in employee retention concerns. This focus can lead to several benefits.

1. Continuity: The ERC ensures that your key staff remain in place, maintaining the continuity of your services and operations.
2. Stability: Financial stability can instill confidence among your staff, beneficiaries, and supporters.
3. Mission Fulfillment: With financial worries set aside, you can channel your resources and efforts towards achieving your mission.
4. Long-term Goals: The assurance of staff retention can empower you to plan and work towards your long-term goals with greater certainty.

In essence, the ERC contributes significantly to the overall robustness and resilience of your nonprofit organization.

Examples Of Non-profit Organizations That Can Benefit From ERC

Consider non-profit sectors like arts and culture organizations, education and health services providers, and religious and social welfare organizations. These are prime examples of entities that can reap substantial benefits from the Employee Retention Credit (ERC).

Let’s explore how these organizations can leverage the ERC to help their business.

Arts And Culture Organizations

As a nonprofit arts and culture organization, you’re among the many that can significantly benefit from the Employee Retention Tax Credit (ERTC).

1. Museums: With reduced visitors and income, the ERTC can help offset costs and keep the staff engaged.
2. Theaters: Closed curtains have led to substantial revenue loss. The ERTC enables theaters to retain their talented performers and crew.
3. Art Galleries: Financial hardships shouldn’t cause creativity to suffer. Galleries can use the ERTC to maintain their staff and keep the arts alive.
4. Music Venues: These sites have felt the pandemic’s impact profoundly. The ERTC can assist in retaining essential staff until the music can play again.

Education And Health Services Providers

Turn your attention now to education and health services providers, two types of nonprofit organizations that can greatly benefit from the ERC.

Educational institutions, like private schools and colleges, which have had to adapt to remote learning due to COVID-19 restrictions, can utilize this credit to retain key staff. For instance, schools experiencing a drop in enrollment can claim the credit based on qualified wages for retained employees.

Likewise, healthcare providers, who’ve been on the frontline during this pandemic, can leverage the ERC to reduce payroll tax liability while maintaining vital services. Similarly, healthcare facilities and religious organizations with partially suspended operations or limited group meetings can qualify for this valuable relief.

The ERC can provide critical support during these challenging times.

Religious And Social Welfare Organizations

If you’re part of a religious or social welfare organization, you’ll find that these types of non-profits can greatly benefit from the Employee Retention Credit (ERC). Despite the challenges brought on by the pandemic, your dedication to serving the community doesn’t have to be compromised.

1. Religious Organizations: Institutions operating schools, charity programs, or community outreach initiatives can qualify for the ERC, helping maintain your staff and services.
2. Social Welfare Organizations: Entities like food banks, health clinics, and homeless shelters may also be eligible, providing vital financial relief.
3. Eligibility Criteria: Ensure your non-profit meets the requirements, such as experiencing significant disruption or a decrease in gross receipts.
4. Claiming ERC: Consult an ERTC tax professional to guide you through the process, ensuring you maximize your benefit from this credit.

5 Steps to Claim the ERTC for Non-profits

To claim the Employee Retention Tax Credit (ERTC) for your nonprofit organization, you’ll need to follow a few basic steps:

First, figure out if your organization is eligible.

Second, use IRS Form 941-X.

Third, calculate your qualifying wages.

Fourth, submit the form by the deadline.

Fifth, wait for your refund.

1. Determine Eligibility

Before you can claim the Employee Retention Tax Credit for your nonprofit, you need to determine your eligibility based on your operational status and gross receipts.

Here’s a simple guide to help you determine your eligibility:

1. Operational Status: Review the impact of COVID-19 on your operations. Did you fully or partially suspend operations due to government orders?
2. Gross Receipts: Compare the gross receipts of 2020 or 2021 to those in 2019. A decrease of more than 50% in 2020 or 20% in 2021 qualifies you.
3. Wage Payments: Ensure you’ve paid wages during a quarter of business suspension or significant decline in gross receipts.
4. PPP Loans: If you received a PPP loan, you can still claim the ERTC, but not for the same wages.

If you are uncertain about claiming we recommend you consult with an ERTC tax professional to ensure you meet all eligibility requirements.

2. Use IRS Form 941-X

Understanding the process of using IRS Form 941-X is crucial in your nonprofit’s journey to claim the Employee Retention Tax Credit. This form amends your original Form 941, allowing you to specify your credit amount, including the qualified sick and family leave wage credit if applicable.

While you don’t need to include backup documents with the form, it’s imperative to keep them on hand in case of an audit. To properly file Form 941-X, indicate the exact amount of ERTC you’re claiming, and ensure the information aligns with your records.

File it within three years from the initial filing date or two years from the date the payroll tax was paid. Remember, accuracy and timeliness are key to a successful claim.

3. Calculate Qualifying Wages

After getting Form 941-X, you’ll need to calculate the qualifying wages for your nonprofit to claim the ERTC. This process is crucial to ensure you accurately claim the tax credit your organization is entitled to.

Here are the steps to follow:

1. Identify the qualifying quarters of 2020 and 2021.
2. Determine the total wages paid during these quarters.
3. For small nonprofits, include wages paid to all employees.
   For larger organizations, only include wages paid to employees who didn’t provide services.
4. Calculate the total of these qualifying wages.

4. File Form 941-X by the Deadline

Once you’ve accurately calculated your qualifying wages, it’s crucial that you file IRS Form 941-X by the deadline to claim the ERTC for your nonprofit.

The form modifies your original Form 941 and indicates the amount of ERTC you’re claiming. You have a generous window to claim retroactively – until 2024, in fact. But don’t delay; the deadline is three years from when you filed Form 941 or paid the payroll tax, whichever is later.

Be meticulous as incorrect or incomplete forms may delay your claim or invite an audit. After filing, wait for the IRS to process your claim. If your payroll tax liability is covered, expect a refund.

Consult with a tax professional or an ERTC tax expert for guidance throughout this process if you are unsure.

5. Wait for Your Refund

Now that you’ve filed your Form 941-X, it’s time to patiently wait for your refund from the IRS. Remember, the process can take some time, especially given the increased demands on the IRS due to the pandemic.

Here’s what you can do while you wait:

1. Don’t panic if your refund takes longer than expected. The IRS may be dealing with a backlog.
2. Remember that your refund amount will be what’s left after your payroll tax liability has been covered.
3. Start the process as soon as possible to get your refundable credit quickly.
4. If you’re concerned about the delay, consult with an ERTC expert to ensure you’ve done everything correctly.

Stay patient and keep track of your claim’s progress.

Common Mistakes Or Issues In Claiming ERC For Non-profits

When claiming the Employee Retention Credit (ERC) for your nonprofit, it’s crucial to avoid common missteps. Errors like miscalculating or incorrectly claiming the credit, including ineligible wages or expenses, and failing to meet documentation and recordkeeping requirements can lead to complications.

Let’s explore these issues in detail to help you navigate the ERC process effectively and accurately.

Incorrect Calculation Or Claim Of Credit

In claiming the Employee Retention Tax Credit, you must be wary of common mistakes such as incorrect calculations or claims. The smallest error can result in significant discrepancies, leading to potential penalties or missed credits.

Here are four key issues to avoid:

1. Incorrect Wage Calculations: Ensure you accurately calculate your eligible wages. Inaccuracies can lead to under or overestimated claims.
2. Inclusion of Ineligible Expenses: Not all payroll expenses are eligible for ERTC. Understand the guidelines thoroughly to avoid wrongfully including ineligible expenses.
3. Inadequate Documentation: The IRS requires specific records to validate your claim. Failing to meet these requirements could lead to claim denial.
4. Not Seeking Professional Guidance: Navigating tax laws can be complex. Engaging a tax advisor familiar with ERTC regulations can help avoid costly mistakes.

Ineligible Wages Or Expenses

Avoiding common pitfalls when claiming the Employee Retention Credit (ERC) for your non-profit, you should be aware of ineligible wages or expenses that could potentially hinder your claim. It’s crucial not to include amounts paid to family members or business owners.

Additionally, don’t consider wages or expenses already utilized for other tax credit programs like PPP forgiveness. These common mistakes can negatively impact your eligibility for the ERC.

Ensure you’re not overlapping claims, as this can lead to complications with your application.

To maximize your non-profit’s eligibility and avoid these issues, it’s recommended to consult with a professional ERTC tax advisor. They can guide you through the process, helping you to avoid these common errors and optimize your claim.

Documentation And Recordkeeping Requirements

You need to be aware of the critical role that proper documentation and recordkeeping play in claiming the Employee Retention Credit (ERC) for your non-profit. Ensuring compliance with these requirements can prevent loss of credits or increased scrutiny from federal agencies.

Here are four common mistakes to avoid:

1. Insufficient Documentation: Always keep comprehensive records demonstrating your eligibility for the ERC.
2. Misinterpretation of Qualification Criteria: Understand the evidence needed to show a significant decline in gross receipts or partial suspension of operations due to COVID-19.
3. Failure to Seek Professional Advice: Consider consulting with ERTC professional advisors for guidance on recordkeeping.
4. Overlooking Technology: Utilize payroll management software to maintain accurate records and streamline the documentation process.

We would recommend using an ERC Tax Expert to help you work through the process. Clicking on the image below takes you to our recommended ERC tax expert. Go through the questions which are aimed at quickly finding out if you qualify for ERC or not, not everyone is eligible.

Conclusion

In conclusion, leveraging the ERTC can significantly bolster your nonprofit’s financial position. Understanding its nuances, meeting qualification requirements, and avoiding common pitfalls is crucial.

Remember, the goal isn’t just to claim this tax credit, but to maximize its benefits. With careful planning and execution, your nonprofit can navigate this incentive successfully, ensuring a more stable future for your organization and the invaluable services you provide.