A Church Leader’s Guide to the Employee Retention Credit

What could your church do with an extra $7,000? What about $7,000 per employee per quarter?

Many church leaders overlooked the Employee Retention Credit (ERC) in their rush to apply for PPP loans and other COVID-related financial relief programs. But by claiming the ERC, you can very well receive thousands of dollars that support your efforts to recover from the financial rollercoaster of the last two years.

To talk with a professional about claiming the ERC, fill out the form below.

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What Is the Employee Retention Credit (ERC)?

Here’s a quick refresher, in case you need it. The ERC is a tax credit that was introduced in March of 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act, commonly known as the CARES Act. The ERC is a fully refundable tax credit that reimburses employers for wages and certain health plan expenses paid during specific periods in 2020 and 2021:

• 2020: March 13, 2020 through December 31, 2020
• 2021 (Q1, Q2, and Q3): January 1, 2021 through September 30, 2021 (and Q4 if the organization is considered a “Recovery Startup Business”)

There have been many updates to the ERC that you may not know about, and as a result, you might not be maximizing the full benefits of the ERC for your organization.

How Do You Determine Your Church’s Eligibility for the ERC?

To be considered eligible for the ERC, you must meet one of the following criteria:

• Suspended Operations: You must have fully or partially stopped services, gatherings, or other core activities due to COVID-19 mandates from the government.
• Decline in Gross Receipts: You must have experienced a significant decline in gross receipts during eligible periods in 2020 or 2021 when compared to the same periods in 2019.

What Counts as “Suspended Operations” for Your Church’s ERC Eligibility?

Some churches may not have experienced the necessary percentage of decline in gross receipts. However, these churches most likely had to suspend vital operations, such as Sunday School programs and other children’s ministries, church fellowship events, and other socially oriented church activities.

If you had to make such adjustments, you may fulfill the “suspended operations” requirement if those activities are typically a significant portion of your church’s activities.

Key Points Regarding Declines in Gross Receipts

To be eligible for the ERC in any 2020 quarter after March 12, you must have seen a decline in gross receipts of 50% or more when compared to the corresponding 2019 quarter.

In the first three quarters of 2021, your church may fulfill the gross receipt requirement if you experienced a decline in gross receipts of at least 20% in any of the first three quarters when compared to the same quarter in 2019.

Additionally, the IRS has clarified that tax-exempt organizations must include gross receipts for all activities, not just unrelated trade or business activities.

Can PPP Recipients Claim the ERC?

Initially, PPP loan recipients were not allowed to claim the ERC, as the IRS noted here. However, the CARES Act was retroactively amended by the Relief Act to allow PPP loan recipients to claim the ERC in 2020 and 2021. However, as you’re checking your ERC eligibility, you may not include wages that were part of your PPP loan forgiveness calculations.

The move to allow PPP loan recipients to receive the ERC is an enormous opportunity for your tax-exempt organization, provided you meet the eligibility requirements for the ERC.

ERC Eligibility Calculation Example

It’s easy to get lost in the numbers when learning about the ERC, so here’s an example to help you understand how eligibility is determined:

Explanation

Since ERC eligibility requires a decline in gross receipts of 50% or more, Church A would be eligible for the ERC for Q2 of 2020. Church A would also qualify for the ERC within Q3 because eligibility continues through the end of the first quarter in which there is less than a 20% decline in gross receipts when compared with the gross receipts of the corresponding 2019 quarter.

Calculating Your Church’s Qualified Wages for the ERC

Once you’ve determined that your church passes either the suspended operations test or gross receipts test, you must calculate your qualified wages. The amount of qualified wages used to calculate your ERC amounts depends on your number of church employees in 2019.

How to Claim the ERC for Your Church or Tax-Exempt Organization

If you are interested in determining your organization’s ERC eligibility, here are the steps you can take:

• Determine whether your organization fulfills either the suspended operations requirement or the decline in gross receipts requirement.
• Calculate your total amount of qualified wages and apply the proper rate for each qualifying quarter.
• Claim your ERC through an advance payment or claim a refund on your amended Form 941-X quarterly payroll tax return.
• Decrease the amount of your ERC from your deductible wages on your income tax return.

Do You Have More Questions About the ERC?

Hopefully this article has helped you understand how you can take full advantage of the ERC for your church. The timeframe to claim the ERC is 3 years, so it’s best to check your ERC eligibility now and claim the amounts for which you’re eligible.

Talk to an Accountant About the ERC!

If you’d like to see if your church or nonprofit is eligible for the ERC and want to talk to an accountant for professional help, please complete the form below. After you’ve submitted the form, someone with MBS Accountancy will reach out to you to schedule a consultation about your eligibility for the ERC. You’ll also receive other helpful articles like this one.

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To learn more about claiming the ERC for your organization, talk with your accountant or check out these resources:

• Employee Retention Credit (ERC) Assistance – MBS Accountancy
• FAQs: Employee Retention Credit under the CARES Act | Internal Revenue Service
• Employee Retention Credit – 2020 vs. 2021 Comparison Chart
• Employee Retention Tax Credit: What You Need to Know

This is a guest article provided by Cassidy Jakovickas, CPA at MBS Accountancy.