After struggling with the emotional and financial impacts of an international pandemic for over a year, churches and nonprofits are turning their attention to the Employee Retention Credit (ERC) for additional help and support.
The Employee Retention Credit, under the CARES Act, encourages businesses to keep employees on their payroll by providing a tax credit of up to $33,000 for each employee when a business has been financially impacted by COVID-19.
Is your church prepared to obtain — and retain — ERC funds?
To find out more about ERC funds and how to qualify, Church Executive partnered with Phoenix-based Stenson Tamaddon, a consulting firm specializing in compliance and specialized accountancy, to host the webinar: “Employee Retention Credits, ERC and COVID Stimulus for Churches.”
Stenson Tammadon offers top-quality compliance and specialized accountancy services related to the CARES Act and has helped more than 2,100 businesses retain $500 million in stimulus funding. Its proprietary industry-leading platform has been licensed by nearly 200 accounting and CPA firms coast-to-coast. Stenson Tamaddon’s professional done-for-you submission services and comprehensive supporting schedules are designed to ensure your organization’s loan forgiveness application is audit-ready and accepted the first time.
Leading the presentation was Stenson Tamaddon CEO Eric Stenson, joined by Stenson Tamaddon partner Aaron Tamaddon and Senior Vice President Ryan Rowland.
During the webinar, Stenson discussed how churches can claim up to $33,000 per employee in ERC funds, how to qualify for these funds (even if your church did well during COVID), how a Lutheran church and school was able to secure $664,000 worth of stimulus, and how “white glove service” can get your church the funds it needs.
Begin with the basics
Stenson started the presentation by introducing the stimulus program and its background. Created as part of the CARES Act, Section 2301 allows “eligible employers” an employee retention credit, equal to 50 percent of “qualified wages” paid to each employee for each calendar quarter during the COVID-19 crisis. The ERC is a fully refundable payroll tax credit, meaning that even though it is claimed against payroll tax, the amount of the credit may exceed the actual payroll taxes due.
As a result of the legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021, according to the IRS.
“As an example, one of our more recent clients was a Lutheran Church,” Stenson explained. “We first assisted this church with their PPP loan forgiveness. They had a PPP loan for about $600,000. After we did their PPP loan forgiveness, we were able to file three amended returns for 2020 and get the church another $327,000. So that’s the $600,000 on the PPP and then another $327,000 — almost $330,000 — in a check for the ERC. And that’s cast for the 2020 calendar year. For this year, we believe that we’re going to be able to deliver to this church over a million dollars.”
According to Stenson, when combined with the PPP, the 2020 ERC and the 2021 ERC claims could result in about $2 million for a relatively small church.
“The amount of good that they’re going to be able to do in their ministry with those funds is incredible,” Stenson said. “From delivering new childcare services and daycare services, to being able to expand their reach within the community, helping people in need, stabilizing the church financials, and creating long-term funds, this is money that’s really going to help this church.”
According to Stenson, it’s important to note that unlike PPP loans, ERCs do not have any restrictions on the use of proceeds. However, if a business decides to claim both the ERC and the PPP, there are restrictions regarding payroll allocations.
“There are some behind-the-scenes schedules that need to be created and calculations that need to be done to avoid what’s known as ‘double-dipping,’” Stenson said. “As you pay employees, we create an Excel workbook that designates payroll dollars towards one of the programs, either ERC or PPP, and we make sure that we maximize the money going to your church.”
Stenson Tamaddon uses software developed for PPP to help companies maximize their ERC potential by taking these considerations into account. Because of the complex calculations, evolving landscape, and interactions with other stimulus programs like PPP, Stenson notes that the best choice might not be to rely on your church’s primary tax accountant.
Who is considered an Eligible Employer for the ERC?
According to Stenson, one of the most frequent questions his firm gets concerns employer qualification. “We talk to dozens of churches and synagogues and nonprofits and other businesses on a daily basis,” Stenson said. “And we frequently find that people will self-disqualify their institution or their business from ERC credits. They just feel like it’s too good to be true.”
Stenson explains that while most businesses were impacted by COVID-19 in some capacity, not everyone experienced a severe revenue dip and, as a result, businesses often assume that they won’t qualify for ERC funds. However, the ERC is not narrowly directed towards small businesses, but instead available to eligible employers operating a business that meets one of the following:
• The operation of the business is fully or partially suspended during the calendar quarter due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to COVID-19.
• The employer experiences a significant decline in gross receipts when comparing quarters between 2019 and 2020.
• Employees are paid on a W2 basis (employees paid on a 1099 basis will not qualify for ERC funds).
“While these may seem like narrow specifications, what it essentially means is that your church or business was impacted by a government order,” Stenson said. “That could mean a number of things. Even if you have been blessed by your congregants and have done well during the pandemic, your church still qualifies.”
This type of qualification could include:
• A reduction in capacity, including congregants and staff
• Additional cleaning and sanitation measures
• Temporary termination of travel or outreach
• Transition to online ministry or worship services
While Stenson is adamant that all churches and nonprofits qualify for ERC funds, he and his team stress the importance of not attempting to calculate the credit for yourself.
“There’s a lot of complexity to it, especially if you have a PPP or second draw PPP loan,” Stenson said. “A lot of institutions that we talk to get confused on how this credit is claimed. Understand that this is probably beyond the scope of what most CPAs, CFOs, treasurers, or business managers would be comfortable preparing in-house.”
Stenson’s firm encourages all churches or businesses to work with a professional when attempting to claim any ERC funds.
“We specialize in this as an accounting services and technology firm,” Stenson explained. “There are hundreds of pages of rules and very particular instructions on how to do it. We are here to help you, to give you that ‘easy button’ so that we can fill out all those forms for you and we can make sure that the calculations are right and accurate.”
Questions? Readers ask, an expert answers.
If a church only has one employee, does it qualify to participate in the PPP program?
Eric Stenson: For one-employee institutions, the answer is yes, you could certainly qualify. We would want to make sure that there’s wages available, and we would highly recommend contacting us so that we can walk through and make sure that there’s available payroll.
How many quarters can I claim in 2020?
Stenson: The ERC program started on March 13, which is Q1. The IRS instructions say any credits that you want to take from Q1 to put on the Q2 return, qualify. So, when we file returns for our clients, we file Q2, Q3 and Q4 for 2020, even though we’re using wages that start in Q1 of 2020. For 2021, we are currently filing Q1 of 2021. And as time passes, we will file as Q2, Q3 and Q4, assuming COVID continues to impact churches.
We file no annual tax return and have no UBI; only payroll taxes are paid. Does this process still work?
Stenson: This particular credit and check that comes back to you is done against the payroll returns, so you don’t need to file an annual return. This was very intentional of Congress because they wanted to make sure that churches just like yours are able to claim these credits. They knew that many of them don’t file annual returns or file annual returns of zeros.
I don’t want to get too technical, but this is what’s known as a fully refundable credit; regardless of the amount of tax you’ve actually paid, you get a check back for the full amount of the credit. So, whether you’ve paid $0 in taxes or a $1 million dollars in taxes, if you’re entitled to $100,000, you’ve got $100,000 in a check.
What is the deadline for applying for ERC credits?
Stenson: The current rules allow you to amend returns for up to three years. While there’s time, we advise people not to wait. If you consider PPP loans, for example, the program has not officially closed, but it has run out of money. So, certainly the earlier you get started, the better position your ministry or institution will be in terms of claiming. There is a bit of a lag from the time that we file those returns, to when the check actually arrives; it can take 12 to 16 weeks. So, you certainly want to get started as quickly as possible.
Do individuals paid on a 1099 basis count?
Stenson: Unfortunately, no — if you’re paying a minister or if you have a musician you’re paying on a 1099 basis, those wages won’t count. We can only collect for people who are actually employed by your institution and receiving W2 wages.
How do we get started with all this?
Stenson: The best way is to email us and pass along your contact information. We have a very simple engagement letter. Once that’s signed, our staff accountants will work with you through the whole process. If you have any questions, you can call (602) 560-9393 or email firstname.lastname@example.org.
— Reporting by Emma Green