Understanding Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC) is a federal tax credit for businesses and nonprofits that paid employees during the pandemic or had significant declines in gross receipts. This credit is available to eligible employers who retained their employees despite the challenges posed by the pandemic. The ERTC is also available to recovery startup businesses, and it is claimable on their tax returns.
What is ERTC?
ERTC is a refundable tax credit that is designed to help businesses and nonprofits keep their employees on payroll during the pandemic. This credit is refundable, meaning that if the amount of the credit exceeds the tax liability of the employer, the excess amount will be refunded to the employer.
Eligibility for ERTC
To qualify for the ERTC, a nonprofit must meet certain eligibility requirements. These requirements include:
- Having employees on payroll.
- Experiencing either a full or partial suspension of operations due to a government order or a significant decline in gross receipts.
There are two ways to determine eligibility for the ERTC:
Gross Receipts Test
Under the Gross Receipts Test, a nonprofit is eligible for the ERTC if it experienced a decline of more than 20% in gross receipts when compared to the same quarter in the previous year. The ERTC can be claimed for the quarter in which the decline occurred and the subsequent quarter until gross receipts exceed 80% of the gross receipts for the same quarter in the previous year.
Government Mandate Test
Under the Government Mandate Test, a nonprofit is eligible for the ERTC if it experienced a full or partial suspension of operations due to a government order. The ERTC can be claimed for the quarter in which the suspension occurred and the subsequent quarter until the nonprofit resumed normal operations.
Benefits of ERTC
The ERTC provides significant benefits to eligible nonprofits. These benefits include:
- The ability to retain employees during the pandemic.
- Maximum benefits for religious organizations with 100 or fewer full-time employees.
- A credit of up to $7,000 per employee per quarter in 2021.
Deadline for ERTC
The deadline for claiming the ERTC is three years after the original filing date. It is important to file for the ERTC before the deadline to avoid missing out on this valuable tax credit.
How Nonprofits Can Qualify for ERTC
There are several ways for nonprofits to qualify for the Employee Retention Tax Credit (ERTC). These include:
HIREtech
HIREtech is an Equifax company that helps nonprofits qualify for the ERTC. They have helped over 700 nonprofits qualify for the ERTC, resulting in over $41 million in payroll tax credits. HIREtech can help determine whether a nonprofit is eligible for the ERTC and can assist with filing for the credit.
To contact HIREtech and find out if your nonprofit qualifies for the ERTC, visit their website at https://workforce.equifax.com/all-blogs/-/post/nonprofits-are-eligible-for-employee-retention-credits.
P3 Cost Analysts
P3 Cost Analysts is a firm that specializes in helping nonprofits claim the ERTC. They can help determine whether a nonprofit is eligible for the ERTC and can assist with filing for the credit. P3 Cost Analysts has helped many nonprofits qualify for the ERTC, resulting in significant payroll tax credits.
To contact P3 Cost Analysts and find out if your nonprofit qualifies for the ERTC, visit their website at https://www.costanalysts.com/employee-retention-credit-nonprofits-churches/.
AICPA's Center for Plain English Accounting
The American Institute of Certified Public Accountants (AICPA) has a Center for Plain English Accounting that provides accounting guidance and consultation to nonprofits. They can help determine whether a nonprofit is eligible for the ERTC and can assist with filing for the credit. The AICPA's Center for Plain English Accounting has helped many nonprofits qualify for the ERTC, resulting in significant payroll tax credits.
To contact the AICPA's Center for Plain English Accounting and find out if your nonprofit qualifies for the ERTC, visit their website at https://www.aicpa.org/interestareas/centerforplainenglishaccounting.html.
The best way to claim ERTC for nonprofit organizations
A nonprofit can claim the credit by following these steps after determining that it is qualified for the ERTC:
The steps to file an ERTC claim
- The following information should be gathered, including:
– Full-time employee counts
– Gross receipts
– Government mandates
– Payroll tax data - Calculate the ERTC's value using the appropriate method (Gross Receipts Test or GovernmentMandate Test).
- File for the ERTC by claiming the credit on the appropriate tax form (form 941 for quarterly filings or Form 7200 for advance payments).
- If the amount of the credit exceeds the employer's tax liability, wait for the IRS to review the claim and issue a refund.
When claiming ERTC, avoid these mistakes.
Nonprofits should be aware of common errors that may result in the denial of the credit when submitting an ERTC application. Among these errors are:
- failing to provide accurate information on the tax form.
- delaying submitting a credit application until the deadline.
- claiming the credit for ineligible workers or due dates.
- failing to maintain sufficient records to support the claim.
Nonprofits can avoid these errors by collaborating with a qualified accounting firm or tax expert to make sure that their claim is accurate and complete.
Benefits of ERTC for Nonprofits
The Employee Retention Tax Credit (ERTC) provides significant benefits to eligible nonprofits. These benefits include:
Ability to retain employees
The ERTC helps nonprofits to retain their employees during the pandemic by providing a tax credit that can be used to offset payroll expenses. This credit can help nonprofits to avoid layoffs and other cost-cutting measures that could harm their operations.
Maximum benefits for religious organizations with 100 or fewer full-time employees
Religious organizations with 100 or fewer full-time employees are entitled to maximum benefits for the 2020 ERTC. This means that eligible organizations can claim a credit of up to $5,000 per employee for the 2020 tax year.
A credit of up to $7,000 per employee per quarter in 2021
For the 2021 tax year, eligible nonprofits can claim a credit of up to $7,000 per employee per quarter. This credit can be used to offset payroll expenses and other costs associated with retaining employees during the pandemic.
Refundable credit
The ERTC is a refundable credit, which means that if the amount of the credit exceeds the tax liability of the employer, the excess amount will be refunded to the employer. This makes the credit especially valuable to nonprofits that are struggling to maintain their operations during the pandemic.
Expert assistance available
There are several firms and organizations that specialize in helping nonprofits claim the ERTC. These firms can help nonprofits to determine whether they are eligible for the credit and can assist with filing for the credit. Working with an expert can help nonprofits to maximize their benefits and avoid common mistakes when claiming the credit.
Claim ERTC and Save Your Nonprofit Today
The Employee Retention Tax Credit (ERTC) can provide significant benefits to eligible nonprofits during the pandemic. By claiming the credit, nonprofits can retain their employees and offset payroll expenses, helping to ensure the long-term viability of their operations.
If you think your nonprofit may be eligible for the ERTC, don't hesitate to take the first step and contact a qualified accounting firm or tax professional. These experts can help you to determine whether you qualify for the credit and can assist with filing for the credit.
Remember, the deadline for claiming the ERTC is three years after the original filing date. Don't miss out on this valuable opportunity to save your nonprofit and keep your employees on payroll during these challenging times.
Thank you for reading this article. We hope that you found it informative and helpful. Be sure to check out our other great content for more valuable insights and tips for nonprofits.
FAQs
Question: Who is eligible for the Employee Retention Tax Credit for nonprofits?
Answer: Nonprofits with employees on payroll that experienced pandemic-related losses.
Question: What is the Employee Retention Tax Credit for nonprofits?
Answer: A refundable tax credit to help nonprofits retain employees during the pandemic.
Question: How can nonprofits claim the Employee Retention Tax Credit?
Answer: Nonprofits can calculate and file for the credit using the appropriate tax forms.
Question: Who can help nonprofits claim the Employee Retention Tax Credit?
Answer: Accounting firms and tax professionals can assist with determining eligibility and filing.
Question: What is the deadline for claiming the Employee Retention Tax Credit?
Answer: Nonprofits have three years from the original filing date to claim the credit.
Question: How can nonprofits avoid mistakes when claiming the Employee Retention Tax Credit?
Answer: Working with a qualified professional can help nonprofits avoid common mistakes.
