Understanding Employee Retention Tax Credit for Education
The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit intended to help businesses keep their employees on the payroll. As schools are also employers, they can also benefit from the ERTC. Specifically, independent schools are eligible for the ERTC if they either fully or partially suspended operation due to COVID-19 or experienced a significant decline in gross receipts.
Under the COVID-19 legislation, schools can file amended payroll tax returns to claim the ERTC. For the 2020 tax year, the credit value is up to $5,000 per employee. For the 2021 tax year, the credit value is up to $7,000 per employee per quarter. Schools are advised to file as soon as possible to prevent further delays with their credits.
To qualify for the ERTC, schools must meet the eligibility criteria set by the government. These criteria are explained in the next section.
Eligibility Criteria for Employee Retention Tax Credit
To qualify for the Employee Retention Tax Credit for Education, schools must meet certain eligibility criteria. Here are the main criteria schools must meet:
Partial or Full Suspension of Operations
Schools that either fully or partially suspended operation due to COVID-19 are eligible for the ERTC. This includes schools that closed their doors temporarily or reduced their hours of operation. According to Venable LLP, schools can file amended payroll tax returns to claim the credit.
Significant Decline in Gross Receipts
Schools that experienced a significant decline in gross receipts are also eligible for the ERTC. A significant decline is defined as a decrease of 50% or more in gross receipts compared to the same quarter in the prior year. Schools can continue to qualify for the ERTC until their gross receipts recover to a certain level. This information is also provided by Venable LLP.
Recovery of Gross Receipts
Schools can continue to qualify for the ERTC until their gross receipts recover to a certain level. Specifically, a school is no longer eligible for the ERTC in a quarter after the quarter in which its gross receipts have recovered to at least 80% of the gross receipts for the same quarter in the prior year. NACUBO explains this in more detail.
Maximum Credit Value
For the 2020 tax year, the credit value is up to $5,000 per employee. For the 2021 tax year, the credit value is up to $7,000 per employee per quarter. MinistryWorks notes that schools can get up to $26,000 per employee through the ERTC.
How to File for the ERTC
Schools can file an amended payroll tax return to claim the ERTC. They can also use the credit to offset payroll tax liabilities or request an advance payment of the credit from the IRS. It is important to file as soon as possible to prevent further delays with credits, as advised by AAF CPA.
How to Claim the Employee Retention Tax Credit
Schools that meet the eligibility criteria for the Employee Retention Tax Credit (ERTC) can claim the credit by following the steps outlined below.
Determine Eligibility
Before claiming the ERTC, schools must determine if they are eligible for the credit. They can do this by reviewing the eligibility criteria explained in the previous section.
File for the Credit
Schools can file an amended payroll tax return to claim the ERTC. They can also use the credit to offset payroll tax liabilities or request an advance payment of the credit from the IRS. According to AAF CPA, schools are advised to file as soon as possible to prevent further delays with their credits.
Keep Accurate Records
Schools that claim the ERTC must keep accurate records to support their claim. The records should include the number of employees retained, the amount of qualified wages paid, and the number of qualified health plan expenses. According to NACUBO, schools should keep the records for at least four years after the due date of the tax return on which the credit is claimed.
Seek Professional Assistance
Schools that need help determining their eligibility or filing for the ERTC can seek professional assistance. For example, Bottom Line Concepts from the Federal Government. They can help schools determine eligibility, calculate the maximum amount they can receive, and guide them through the claiming process. PACAPE, the largest coalition of private schools in Pennsylvania, is working with Bottom Line Concepts to help schools assess and obtain benefits from the ERC. Interested schools can fill out a form on the Bottom Line Concepts website to be contacted by an ERC specialist.
Benefits of the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) can provide significant benefits to schools that qualify for the credit. Here are some of the benefits of the ERTC.
Reduce Payroll Costs
The ERTC can help schools reduce their payroll costs by providing a refundable payroll tax credit for qualified wages paid to employees. This can free up funds that can be used to pay for other expenses.
Increase Cash Flow
By reducing payroll costs, the ERTC can increase a school's cash flow. This can help schools better manage their finances and invest in their operations.
Offset COVID-19 Losses
Schools that experienced losses due to COVID-19 can use the ERTC to offset those losses. This can help schools recover more quickly and continue to provide quality education to their students.
Maximize Savings
The ERTC can provide significant savings to schools that qualify for the credit. According to MinistryWorks, schools can get up to $26,000 per employee through the ERTC. This can add up to significant savings for schools.
Combine with Other Relief Programs
Schools that qualify for the ERTC can also combine it with other relief programs, such as the Paycheck Protection Program (PPP). According to NACUBO, employers can use both the ERTC and the PPP. This can provide additional relief to schools that need it.
Final Thoughts
The Employee Retention Tax Credit (ERTC) can provide significant benefits to schools that qualify for the credit. By reducing payroll costs, increasing cash flow, and offsetting COVID-19 losses, schools can better manage their finances and invest in their operations. Here are some final thoughts to consider:
Act Fast
Schools that qualify for the ERTC are advised to file as soon as possible to prevent further delays with their credits. According to AAF CPA, schools should file an amended payroll tax return or request an advance payment of the credit from the IRS.
Seek Professional Assistance
Schools that need help determining their eligibility or filing for the ERTC can seek professional assistance. For example, Bottom Line Concepts from the Federal Government. They can help schools determine eligibility and guide them through the claiming process.
Consider Other Relief Programs
Schools that qualify for the ERTC can also consider other relief programs, such as the Paycheck Protection Program (PPP). Schools can use both the ERTC and the PPP to provide additional relief and support to their operations.
In conclusion, the ERTC can provide significant benefits to schools that qualify for the credit. By reducing payroll costs, increasing cash flow, and offsetting COVID-19 losses, schools can better manage their finances and invest in their operations. Schools that need assistance determining their eligibility or filing for the ERTC can seek professional assistance.
Ready to Claim the Employee Retention Tax Credit for Education?
If you are a school that meets the eligibility criteria for the Employee Retention Tax Credit (ERTC), you can claim the credit by following the steps outlined in this article. By claiming the ERTC, you can reduce payroll costs, increase cash flow, and offset COVID-19 losses. Here are some final thoughts to consider:
- Determine eligibility
- File for the credit
- Keep accurate records
- Seek professional assistance
- Consider other relief programs
At ertcguy.com, we provide valuable resources to help schools manage their finances and operations. Check out our other great content to learn more about tax credits, payroll management, and other financial topics.
Frequently Asked Questions
Who is eligible for the Employee Retention Tax Credit for education?
Schools that experienced COVID-19 losses or suspended operations.
What is the maximum credit per employee for the ERTC?
$5,000 for 2020 and up to $7,000 per employee per quarter for 2021.
How can schools claim the Employee Retention Tax Credit?
By filing an amended payroll tax return or requesting an advance payment.
Who can schools contact for assistance with the ERTC?
Professional services like Bottom Line Concepts can provide help.
What other relief programs can schools combine with the ERTC?
Schools can combine the ERTC with the Paycheck Protection Program.
How long is the Employee Retention Tax Credit available for?
The ERTC expired after the third quarter of 2021.
