The ERC for Nonprofit Organizations

Are you a nonprofit organization that has been financially impacted by the COVID-19 pandemic? Look no further to get your questions answered about the Employee Retention Credit (ERC). At ERC Specialists, we’re the payroll tax experts you need to navigate the complex world of ERC. You already have limited resources as a nonprofit, and your work is essential. We want to help you get the maximum ERC tax benefits available for you to continue the selfless work you do each day.

What is the ERC for Nonprofits?

The Coronavirus Aid, Relief and Economic Security (CARES) Act was developed to incentivize organizations to maintain their employees on payroll during the pandemic. It created ERC, a refundable payroll tax credit that can be claimed against the employer’s portion of the Social Security and Medicare taxes. In 2021, the Consolidated Appropriations Act (CAA) extended the ERC program through Q1,Q2 and Q3 of 2021, giving you even more opportunities for financial recovery.

Does My Non Profit Qualify for ERC Funds?

Your organization may qualify for ERC if you experienced either of these two scenarios.

  1. If you experienced a 50% or greater decline in gross receipts in 2020 vs. the same quarters in 2019. For nonprofits, gross receipts are those within IRS Code 6033, without reduction for costs or expenses. In 2021, you may be eligible if you experienced a 20% or more decline in gross receipts vs. the same quarter in 2019.
  2. Your organization experienced a partial or complete suspension during any quarter covered by the ERC program due to governmental restrictions related to the COVID-19 pandemic.

With option 1, for the purpose of determining whether you qualify for ERC funds, you should analyze gross receipts from all operations, not just those from activities that are unrelated trades or businesses.

For option 2, you may qualify simply if your organization’s activities were fully or partially suspended during a calendar quarter in the program timeframe.

For example, you may offer activities in venues that were closed during the pandemic. Or you may have had limited on-site meetings. Or perhaps you experienced supply chain delays or interruptions resulting from these types of orders being placed on partners or distributors.

In addition, for 2020 wages paid, employers averaging more than 100 FTEs during 2019 can claim the ERC for wages paid to employees for the period they aren’t providing services only. For 2021 wages paid, this restriction applies only to employers who averaged 500 or more FTEs in 2019. 

How Does the ERC Work in Conjunction with a PPP Loan?

Great news! This ERC funding may be claimed by any eligible employer, which includes tax-exempt nonprofit organizations — even if you previously received a Paycheck Protection Program (PPP) loan.

While many qualified employers received a PPP loan vs claiming ERC, now is the time you can capitalize on modifications that enable you to receive the funds. If you received a PPP loan and have applied for loan forgiveness, the wages involved will reduce your eligibility for ERC.

However, if you received a PPP loan and haven’t applied for loan forgiveness, you should claim all qualifying non payroll costs such as rent, utilities, mortgage interest, etc. in the application to make sure the maximum amount of qualified wages will be counted toward ERC.

How Much ERC Funding Can My Non Profit Organization Qualify For?

For 2020, the ERC equals 50% of the qualified wages, which also includes employer-paid health care, that an eligible employer pays in a quarter. The maximum amount of wages in 2020 per employee in any quarter is $10,000. This means the maximum ERC credit for those wages is $5,000.

In 2021, the ERC equals 70% of the qualified wages, and health care costs up to $10,000 per quarter. The maximum wages in 2021 per employee in any quarter is $7,000. Because only Q1, Q2 and Q3 are eligible, the maximum total credit per employee in 2021 equals $21,000..

Refiling your 2020 and 2021 941 Payroll Tax Returns

Of course, returns for 2020 have already been filed, and the taxes paid, so you will need to amend your tax returns according to the quarter (or quarters) in which the qualifying wages were paid in order to claim your ERC funds. Use IRS Form 941X.

With so much complexity involved in the ERC language, modifications and eligibility requirements, it is important that non profit organizations work with certified payroll tax experts like ERC Specialists to maximize your ERC funding while protecting the integrity of your financial statements. Contact us today to get started!