As the COVID-19 pandemic continues to ravage the economy, many small businesses and nonprofit organizations are struggling to stay afloat. To provide some relief, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included the Employee Retention Tax Credit (ERTC).
The ERTC is a tax credit available to businesses and nonprofits that have been forced to partially or fully shut down due to the pandemic, or that have experienced a significant decline in gross receipts. The credit is equal to 50% of eligible wages paid to employees, up to a maximum of $5,000 per employee.
But can nonprofits get the ERTC? The answer is yes, but there are some key differences in how nonprofits can claim the credit compared to for-profit businesses.
First, nonprofits must meet the same eligibility criteria as for-profit businesses. This means they must have been forced to partially or fully shut down due to COVID-19, or they must have experienced a significant decline in gross receipts.
Second, nonprofits are eligible for the ERTC only if they are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. This excludes many types of nonprofit organizations, such as labor organizations, social clubs, and political organizations.
Third, nonprofits that are eligible for the ERTC must choose between claiming the credit or claiming the Paycheck Protection Program (PPP) loan forgiveness. This means that if a nonprofit has already received a PPP loan, it cannot also claim the ERTC for the same wages and expenses.
Fourth, nonprofits that are eligible for the ERTC must also meet the same wage and salary limits as for-profit businesses. This means that the credit is only available for wages and salaries paid to employees who are not owners, officers, or family members of owners or officers.
Despite these differences, the ERTC can be a valuable source of relief for eligible nonprofit organizations. By claiming the credit, nonprofits can offset a portion of their wage and salary expenses, which can help them continue to provide essential services to their communities during the pandemic.
To claim the ERTC, eligible nonprofits must complete Form 941, Employer’s Quarterly Federal Tax Return, and include the credit on line 16d. They must also complete Form 5884, Work Opportunity Credit, and attach it to their tax return.
In conclusion, nonprofits can get the ERTC, but they must meet certain eligibility criteria and choose between the credit and the PPP loan forgiveness. By claiming the credit, eligible nonprofits can offset a portion of their wage and salary expenses, which can help them continue to serve their communities during the pandemic.