The COVID-19 pandemic has had a significant impact on many organizations, including nonprofit organizations and churches. In an effort to provide some relief to struggling businesses and nonprofits, the U.S. government has introduced the Employee Retention Tax Credit (ERTC). The ERTC is a tax credit designed to help eligible employers retain their employees during these difficult times. However, many nonprofit organizations are not aware of the ERTC and how it can help them. In this article, we will discuss what nonprofit organizations need to know about the Employee Retention Tax Credit – ERTC for nonprofits.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit is a refundable tax credit available to eligible employers who have been impacted by the COVID-19 pandemic. The tax credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter. This means that eligible employers can receive up to $7,000 per employee per quarter.
Eligibility for Nonprofit Organizations
Nonprofit organizations and churches are eligible for the Employee Retention Tax Credit if they meet certain criteria. To be eligible, nonprofit organizations must:
- Have experienced a significant decline in gross receipts compared to a prior year quarter. A significant decline is defined as a decline of 20% or more in gross receipts.
- Have operations fully or partially suspended due to a government order related to COVID-19.
Calculating the Employee Retention Tax Credit
The Employee Retention Tax Credit is calculated based on the qualified wages paid to employees. Qualified wages are wages paid to employees during the period of economic hardship due to the COVID-19 pandemic. The maximum amount of qualified wages that can be taken into account for an employee is $10,000 per quarter.
To calculate the credit, multiply 70% by the qualified wages paid to employees during the period of economic hardship. The maximum credit that can be claimed for each employee is $7,000 per quarter.
Using the Employee Retention Tax Credit
Nonprofit organizations can use the Employee Retention Tax Credit to offset their payroll taxes. If the credit exceeds the amount of payroll taxes owed, the excess credit is refunded to the nonprofit organization.
ERTC FAQs
Can nonprofit organizations receive the Employee Retention Tax Credit (ERTC) and the Paycheck Protection Program (PPP) loan at the same time?
No, nonprofit organizations cannot receive both the Employee Retention Tax Credit and the PPP loan for the same period of time.
Read more about Can churches and other religious organizations qualify for ERC?
What is the deadline for claiming the Employee Retention Tax Credit?
Nonprofit organizations can claim the Employee Retention Tax Credit on their quarterly payroll tax returns. The deadline for filing these returns is the last day of the month following the end of the calendar quarter.
Read more or watch a video about Can I still apply for ERC in 2023?
Can nonprofit organizations claim the Employee Retention Tax Credit for employees who are not working due to reasons other than COVID-19?
No, nonprofit organizations can only claim the Employee Retention Tax Credit for employees who are not working due to COVID-19 related reasons.
Conclusion
The Employee Retention Tax Credit can provide significant relief to nonprofit organizations during the COVID-19 pandemic. By understanding the eligibility criteria, calculations, and usage of the credit, nonprofit organizations can take advantage of this valuable resource. If you are a nonprofit organization that has been impacted by the pandemic, it is essential to consider applying for the Employee Retention Tax Credit – ERTC for nonprofits. Contact your tax professional or financial advisor to learn more about how you can benefit from this program.