Many non-profits and private businesses buffeted by government-ordered mandated shutdowns and operational disruptions caused by COVID-19 still have the opportunity to seek financial advantages of the Employee Retention Credit (ERC).
Non-profits and businesses that didn’t previously file for an ERC are leaving money on the table if they’re eligible for the ERC and don’t act. Even so, it’s not a matter of just filling out a form: care must be taken with an accountant or financial advisor or it could lead to problems with the Internal Revenue Service (IRS).
The ERC was established as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act was signed into law in March 2020, but depending on the time an organization claims eligibility, the deadline can extend into 2024.
As employers were having to shed employees as government-ordered (including federal, state, and local governments) lockdowns and shutdowns took effect, the ERC was devised to help keep employees on the payroll even if the organization was closed or running at reduced levels. As a result, employers didn’t have to lay people off permanently or shut down their operations entirely. The negative is that it added large amounts to the already extensive national debt.
Nevertheless, ERC exists, and potential eligibility is essentially based on two things:
- Suspension of operations: If your organization was ordered by the government to shut down partially or completely in 2020 or 2021.
- Gross receipts: If the organization had gross receipts reduced by 50% in a quarter in 2020 as compared to the same calendar quarter in 2019, or a 20% similar decrease to the same calendar quarter in 2021.
Under current guidance, the ERC allows for a tax credit of 70% of qualified wages per employee, up to $10,000 per quarter.
Initially, non-profits and businesses that received payments from another COVID response, the Paycheck Protection Program (PPP), were ineligible to receive ERC credits. That prohibition was lifted by the Consolidated Appropriations Act of 2021.
Good news is that the ability to apply for ERC extends three years from the period for which it’s being claimed. This can be confusing since the ERC ending date has been a bit of a moving target. Originally, December 31, 2020 was the close-out time period for ERC-eligible quarters. The Consolidated Appropriations Act extended that to June 30, 2021, followed by the American Rescue Plan (ARP) Act which took the eligibility date to the end of 2021. Then, the Infrastructure Investment and Jobs Act removed the ERC for the last quarter of 2021 for those seeking the credit unless it’s a recovery startup business which there are additional rules.
The IRS website may be helpful in some ways, but be advised that upon arrival on the website page you’re likely to be greeted with “This page is not current.” There are more current notices available here.
Forbes has a good ERC frequently asked questions page, though dated May 8, 2021, which can be found here.
Recognizing revenue appropriately and thorough documentation are essential for an accurate interpretation of ERC eligibility and for how much an employer qualified for. This means thoughtful analysis and evaluation. As might be expected when money is on the table, a number of businesses have sprung up offering – for a fee – to handle various aspects of an ERC. You’re better off working with an experienced CPA in whom you can have confidence.
If the fact that ERC eligibility may still be in play for your non-profit or business is news to you, then it won’t be news that you should explore it thoroughly. It won’t eliminate all of the effects from COVID, but it could smooth out some of the financial turbulence.
