By Mark Landrigan, CPA
Nonprofit churches, schools, colleges, camps and ministries are among those who could benefit from a payroll tax credit that offers financial relief during the coronavirus pandemic.
Here is an overview of the federal Employee Retention Credit, its eligibility requirements, and how to claim the credit.
What is the ERC?
The Employee Retention Credit (ERC) is a fully refundable tax credit for eligible employers. It was initially created by the 2020 CARES Act to encourage businesses to keep employees on their payroll during widespread business interruptions caused by the pandemic.
Originally, the ERC was unavailable to employers who received Paycheck Protection Program (PPP) loans. Subsequently, Congress expanded ERC eligibility in the Taxpayer Certainty and Disaster Tax Relief Act of 2020. The act was part of a larger COVID-19 relief bill, the Consolidated Appropriations Act of 2021, which became law on December 27, 2020.
The Tax Relief Act of 2020 makes the ERC available to employers who received PPP loans, as long as non-PPP funds are used to calculate the credit. The act also extended the employee retention tax credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 extended the ERC through December 31, 2021.
Eligible organizations can receive a tax credit of up to $5,000 per qualified employee in 2020 and up to $28,000 per qualified employee in 2021. This tax credit cannot be claimed for pastors and clergy, because they are exempt from the federal employment taxes (FICA), upon which the credit is based.
Organizations with more than 100 employees may claim the ERC in 2020 only for wages paid to employees who were not working. The Tax Relief Act raised this threshold to 500 employees in 2021. Therefore, employers with fewer than 500 workers can claim the credit in 2021 for wages paid to all employees.
Who is an eligible employer?
Eligible employers include businesses and tax-exempt organizations that experienced EITHER ONE of these situations:
- They at least partially suspended operations between March 13, 2020, and December 31, 2021, because of a government order limiting commerce, travel, or group meetings due to COVID-19.
- They experienced a significant decline in gross receipts in any calendar quarter, compared to the same quarter in 2019. For tax-exempt organizations, “gross receipts” would be the amount typically reported on IRS Form 990.
The Tax Relief Act modified the ERC significantly, making the credit more widely available in 2021. The chart below shows the ERC credit requirements in 2020 versus 2021.
Be sure to read this updated guidance from the IRS about claiming the ERC. You may also wish to review the IRS FAQs: Employee Retention Credit under the CARES Act. Check the IRS FAQs regularly to see the latest updates.
What wages may be used to calculate the ERC?
Employers may include up to $10,000 in qualified wages paid to non-clergy employees during the time period for which the credit is being claimed. Employer health plan costs can be included in ERC calculations for each eligible employee.
The following wages may not be included in ERC calculations:
- Emergency paid sick leave funded by the Family First Coronavirus Response Act.
- Leave taken under the Emergency Family Medical Leave Extension Act
- Employer payroll expenses covered by forgivable PPP funds
- Qualified disaster relief payments
How does an eligible employer claim the ERC?
There are three ways employers can claim the ERC:
- Reduce tax deposits. Employers who are eligible to claim the ERC in 2021 can immediately begin reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the available credit.
- Seek advance payment. If employment tax deposits are not sufficient to cover the 2021 credit, employers with an average of 500 or fewer full-time employees in 2019 may seek an advance payment from the IRS. This can be done by submitting IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19. In 2021, advances are not available for employers larger than this.
- Claim the credit retroactively. Employers can claim the COVID-19 tax credit for 2020 or 2021 by reporting their total qualified wages and the related health insurance costs of each applicable quarter on their quarterly federal tax return, IRS Form 941. If quarterly tax returns have already been filed for the affected time periods, employers can use IRS Form 941-X to claim the ERC retroactively.
Ministries who believe they qualify for the ERC are strongly encouraged to consult a local attorney or tax advisor to ensure eligibility before claiming the Employee Retention Credit.
Mark Landrigan, CPA is Assistant Vice President for MinistryWorks® By Brotherhood Mutual. MinistryWorks is a ministry-focused payroll provider specializing in church payroll, saving ministries both time and money.
11 Responses to “The Employee Retention Credit: an overview for ministries”
I understand the clergy salaries are not eligible, but are amounts paid by church for group health care on behalf of clergy eligible?
Thanks for sharing about the employee retention credit. Can you please tell where can small business owners get ERTC Tax Assistance?
As a federal tax credit the requirements should be the same nationwide. However, for more detailed information you can visit the IRS website. Best of luck!
do have any specifics for Louisiana bases churches?
You can check the IRS ERC website for more information on applications and funding timelines. Best of luck!
I wanted to find the detailed ERC Requirements. Thanks a lot for sharing with us. Just one question, how long does it take to get ERC for small business?
Hi Sandra, MinistryWorks has great resources and will be better able to answer any questions you have regarding ERC. You can reach them directly at https://www.ministryworks.com/ or by calling 866.215.5540. This article may also be helpful. Thank you for your question and best of luck!
I am a part time employee 24 hours/week at a Baptist Church. I have worked here for 20 years. I was off 72 hours recovering from Covid from April 13th thru the 29th. I asked my employer if my sick time could be reimbursed after the church received compensation relative to the Cares Act 2021. They indicated that Churches don’t pay taxes therefore they have no idea how to go about being reimbursed for the time they paid via my sick time. Is there a form they need to fill out? I am not insured by the church as I am on Medicare and my husband’s insurance. Any help you can give me would be greatly appreciated. Sandra Mytys
A great thanks for sharing this informative blog. The points you mentioned under “Hire a Business Accountant” are really helpful. Best wishes for your upcoming blogs
I really appreciate the webinars you host along with Churchwest. Thank you. I work for a small church in El Dorado County, California and though we do not qualify for the ERC based on gross receipts, our ministry and operations have been greatly impacted since March of 2019, due to following the ‘guidance’ as posted from the CDD/CalOsha. We have only 5 non-exempt employees and as the office admin, I do payroll in house. I would like help determining if we qualify in El Dorado County for the ERC and how to document that. Thank you very much!
No hay que tenerle miedo al crédito, ya que la deuda habla bien de nosotros, porque somos sujeto de crédito y con ello adquirimos confianza y credibilidad acerca del comportamiento financiero. Dos aspectos en los que se debe ser cuidadoso, es en tener un propósito definido previo a recibir el préstamo, y en solicitar la cantidad de dinero que esté al alcance de pagar.