You’ve always been a giver. You support causes close to your heart, and believe in the positive impact non-profit organizations make in our world. With the challenges of the recent years, you understand that these organizations now need support more than ever. Let’s explore an avenue that’s not much talked about – Employee Retention Tax Credit (ERTC) – and how non-profits can leverage it for financial support.
Introduction to Employee Retention Tax Credit (ERTC)
The ERTC is a fully refundable tax credit for employers equal to 50% of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This applies to wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
Eligibility Criteria for Non-Profits
Any organisation including non-profits that operates a trade or business during calendar year 2020 and experiences either:
the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
a significant decline in gross receipts.
A non-profit that’s exempt from income tax under section 501(c) of the Internal Revenue Code (Code) is considered an Eligible Employer for ERTC if the operations of its principal function or a comparable department or subdivision is partly suspended.
What’s interesting is that even if some operations are able to continue due to remote work, if the office is closed, that can be considered a partial shutdown, making a non-profit eligible for the credit.
Key Aspects of ERTC for Non-Profits
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Financial Benefits of ERTC for Non-Profits
ERTC is all about retaining employees during periods of business downturn and consequently, it can inject significant capital into businesses and non-profits alike.
Procedure for Applying for ERTC
Applying for ERTC involves a three-step process:
The non-profit must first determine their eligibility.
Calculate the amount of their potential credit.
Finally, claim the credit on their federal employment tax return, usually by reducing their employment tax deposits.
Non-profits can start by reviewing official IRS guidance and determining their eligibility and potential credit amount. Furthermore, non-profits should continue monitoring for any updates on the credit provisions, as rules and regulations are frequently changing in response to the pandemic and its economic impact.
Common Mistakes to Avoid when Navigating ERTC
While ERTC can be a lifeline for non-profits during these tough times, navigating it isn’t necessarily a breeze. Here are some common mistakes to avoid:
Only considering total shutdown and not partial shutdown for eligibility.
Miscalculating the amount of qualified wages.
Overlooking the opportunity for claiming ERTC because they’re already receiving PPP (Paycheck Protection Program) loans.
Remember, while there was initially an either-or stipulation on ERTC and PPP, this has changed now, and non-profits can benefit from both, as long as they aren’t claiming both for the same wages.
Impact of COVID-19 on ERTC for Non-Profits
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COVID-19 specific Provisions in ERTC
The global pandemic forced many businesses to shutter doors temporarily, leading to massive job losses. To counteract its devastating economic effects, the government introduced several relief measures, ERTC being a significant one. However, the original provision was that eligible employers couldn’t claim both PPP loans and ERTC, which limited many organizations from availing these benefits.
Although, with the passing of the Consolidated Appropriations Act 2021, eligible employers can now benefit from both provisions provided the same wages aren’t being counted for both. This is a noteworthy change that significantly increases the financial support available to non-profit organizations.
Aid Provided to Non-Profits During the Pandemic
With the amendment in ERTC guidelines, non-profits who’ve taken a PPP loan can now also look at applying for ERTC for qualified wages which weren’t covered by the PPP loan. This ensures extended support that can make a world of difference for non-profits grappling with a precarious financial situation due to the pandemic.
Changes in Legislation Affecting ERTC and Non-Profits
Besides the crucial change allowing the combination of PPP and ERTC, the credit rate has also been increased from 50% to 70% of qualified wages, and the limit on per-employee creditable wages has been upped to $10,000 for each quarter.
Real-world Case Studies of ERTC Application by Non-Profits
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Success Stories of Non-Profits Utilizing ERTC
A Denver based non-profit, previously relying heavily on grants and donations faced significant cuts in funding due to the pandemic. However, they discovered ERTC as a viable option and have since immensely benefited from the tax credit. They were able to retain all their employees and continue providing their invaluable services to the community.
Lessons Learned from Failed ERTC Applications
Most failed applications can be traced back to the lack of correct information – either misunderstanding the eligibility criteria, or miscalculating the creditable wages. An education-based non-profit in Louisiana learned this the hard way; they miscalculated their qualified wages and had to revisit and revise their whole application, leading to delays in obtaining much-needed funding.
Future Outlook of ERTC for Non-Profits
“457(f) Plan | Definition, Eligibility, Key Features, & Strategies” from financestrategists.com and used with no modifications.
Potential Changes and Developments in ERTC Policy
As we navigate this unpredictable phase in world history, further changes in legislation affecting ERTC can’t be ruled out. It’s crucial for organizations to stay informed and updated to take maximum advantage of these provisions for maintaining their operations.
Preparing Non-Profits for Future Changes in ERTC
Constant vigilance, consultation with tax professionals, and proactive financial planning are the need of the hour for non-profits to successfully prepare for any future changes in ERTC.
Frequently Asked Questions (FAQ) Regarding ERTC for Non-Profits
Question 1: What is the Employee Retention Tax Credit (ERTC)?
ERTC is a refundable tax credit aimed at helping businesses retain their staff during periods of business downturn.
Question 2: Why should a non-profit organization consider ERTC?
Non-profit organizations that have been impacted by the pandemic can benefit from ERTC – it provides funding that can go a long way in helping them continue their operations and services.
Question 3: Who is eligible for ERTC?
Any organization that had to shut down fully or partially due to government orders, or experiences a significant decline in gross receipts is eligible for ERTC. This includes non-profits.
Question 4: Where can an organization apply for ERTC?
Organizations can claim the credit on their federal employment tax return, usually by reducing their employment tax deposits.
Question 5: How does COVID-19 impact ERTC?
COVID-19 has led to enhanced rules governing ERTC, making it available to a wider range of businesses and increasing the financial support offered.
In the challenging landscape of today, every little bit of financial relief counts. And for non-profits, an avenue like ERTC can make the difference between shutting down operations and sustaining them. As supporters and believers in non-profits, let’s spread the word, share the knowledge and enable these organizations to continue their wonderful work. It’s tough out there, but together, we’re tougher!