There are many businesses getting money back from the government through the Employee Retention Credit but what about ERC for churches? Luckily this government program does not exclude churches or non-profit organizations. Let’s see how your church could qualify.
Affects of the Pandemic and ERC for Churches to the Rescue
As a direct consequence of the COVID-19 pandemic, many charitable organizations only survived because they complied with government directives asking them to temporarily cease operations or limit services. And while there is a widespread misconception that tax-exempt organizations are ineligible for a fully refundable government tax credit like ERC—this is certainly not true.
Here’s a quick refresher, in case you need it: First made available to taxpayers in March 2020, Employee Retention Credit (ERC or ERTC) is a government initiative introduced as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to encourage businesses to keep employees on the payroll during widespread interruptions rendered by the COVID-19 pandemic.
This credit was extended out to non -profit organizations as well.
ERC for Churches and Other Religious Entities
Since tax-exempt organizations like churches are also considered to be engaged in business or trade if they continued to keep employees on the payroll despite the difficulties caused by the COVID-19 pandemic, they may still be eligible for significant cash relief in the form of a refundable Employee Retention Credit, also know as ERC or ERTC.
Initially, tax-exempt organizations that had obtained loans via the Paycheck Protection Program (PPP) were not eligible to participate in the Employee Retention Credit. Later, Congress legislated the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which broadened the qualifying requirements for the ERC. The measure was included in the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, and was a component of a broader COVID-19 relief plan.
Church leaders who have received PPP loans may now apply for the ERC—thanks to the Tax Relief Act of 2020, provided that funds other than PPP loans are utilized to calculate the credit.
Due to this measure, the ERTC was also extended until the end of June 2021. However, the American Rescue Plan Act of 2021 extended it until the end of 2021, which was the original expiration date.
This will allow for some churches to receive the tax credits as late as April 2025.
With the new regulations, churches may be eligible for a non-refundable credit. Although the highest possible credit for each employee was $5,000 in 2020, in 2021, it was boosted to $28,000 per employee.
Even while the Employee Retention Credit cannot be used to offset the minister’s salary, it may provide considerable resources to the congregations who qualify for the benefit.
Employee Retention Credit Breakdown for Claims
During any calendar quarter since the COVID-19 pandemic, if your church experienced a significant decline in gross receipts, fully/partially suspended or facilitated any important part of its operations due to a mandate from the state, federal, or local government, then it may be eligible for ERC.
This tax credit is intended to support a church in recovering from the financial impact of the pandemic. Note that your non-profit organization may qualify for a few different calculated ERCs. This could lead to significant money for your organization.
|ERC Year||Minimum Credit||Reported Form|
|2020||$5,000 Per Employee||Forms 941-X (Q2-4)|
|2021 (Q1)||$7,000 Per Employee||Form 941-X (Q1)|
|2021 (Q2)||$7,000 Per Employee||Form 941-X (Q2)|
|2021 (Q3)||$7,000 Per Employee||Form 941-X (Q3)|
If you would like more information regarding the Employee Retention Credit program or would like a complimentary pre-qualification check, please fill out the contact form to get in touch with us.
How Can Churches and Non-Profit Organizations Qualify for ERC?
In the haste to submit applications for PPP loans and other COVID-related financial assistance programs, many church leaders failed to take advantage of the ERC.
However, if you claim the ERC, you can collect thousands of dollars that will assist you in recovering from the rocky ride your finances have been on over the last two years. Considering there is a lot of uncertainty about the requirements and the application procedure, let’s clarify a few things.
The Employee Retention Credit (ERC) is not a deduction for payroll taxes; instead, it is a tax credit that eligible employers, including non-profit organizations, may use to retain employees on the payroll.
Unlike PPP, ERC is not a loan so there is no need for repayment. Unlike non-profit and tax-exempted organizations like churches or ministries, the refundable credit amount is greater than the payroll taxes paid during the tax-generated period for the vast majority of taxpayers.
Government Mandate Test
For the ERC, churches that have their operations completely or partially halted due to orders issued by the appropriate governmental authority to restrict travel, trade, or group meetings due to the COVID-19 pandemic are eligible to be considered Eligible Employers.
However, as long as the government rules remain, the church leader must continue paying wages throughout this period. The following are a few examples:
- An order issued by a municipality or state to work from home.
- A prohibition on holding church weddings or religious events.
- Cancellation of pre-planned conferences due to capacity limitations.
- Restrictions on school hours for churches affiliated with a school.
To qualify for the ERC in any of the 2020 quarters that begin after March 12, you must have had a decrease in gross revenues at least 50% lower than in the 2019 comparable quarter.
Even better, your church might meet the requirement for the number of gross receipts if it experienced a decrease of at least 20% in any of the first three quarters of 2021 compared to the same Quarter in 2019.
For the ERC in 2020, churches with less than 100 full-time workers (as measured, on average, in 2019) are entitled to the maximum available benefits, provided they continue to qualify as an Eligible Employer under either the Gross Receipts Test or Government Mandate Test. T
his would be the case even if the number of full-time employees fluctuated over the year. For the 2021 ERCs, this restriction was settled by raising the full-time employee barrier to 500 or fewer workers.
|Credit Year||Qualified Wages (%)||Qualified Wages Limit|
|2020 Credits||Qualified Wages (50%)||$10,000 Per Employee|
|2021 Credits (Q2-3)||Qualified Wages (70%)||$10,000 Per Employee|
PPP Loan and the Affects on the Employee Retention Credit
As discussed above, eligibility requirements for the ERC are similar to those for the PPP loans. When the ERC was initially allowed as part of the CARES Act, it was statutorily forbidden for any group that had previously received funds under PPP to claim an ERC.
Later, in December 2020, the legislative bar against PPP users collecting ERC payments was eliminated. This occurred when the ERC was extended and improved as part of the Consolidated Appropriations Act.
The following chart gives a breakdown of the progression:
|ERC Changes||Prior Law|
3/13/20 – 12/31/20
3/13/20 – 12/31/20
1/1/21 – 12/31/21
|Interplay with PPP Loan||No ERC||Both are Available (Double Dipping Not Allowed)||Interplay with PPP|
|Eligible Wages (%)||50%||50%||70%|
|Large Employer||100+ Employees||100+ Employees||100+ Employees|
How to Claim Money for Churches
- Identify the criteria for Suspended Operations or Decline in Gross Receipts.
- Next, take out time to determine the total amount of your eligible earnings.
- Apply the appropriate rate to each qualifying Quarter (see the chart above for reference).
- Request a refund on your modified Form 941-X quarterly payroll tax return.
- If not, make an advance payment to receive your earned rate credit (ERC).
Believe it or not, claiming ERC for the church is not as easy as it seems. There is a lot of paperwork involved and eligibility to meet. Therefore, joining hands with ERTC experts like FTCO ERC is your best bet.
If your head is spinning trying to understand the ERTC refund process, don’t worry; we’ve got you covered. Let us walk you through our straightforward five-step process.
- Complete the Questionnaire: Start with a few simple questions to begin your ERC claim.
- Complete Pre-Qualification Check: Our ERC Expert will get an overview of eligibility.
- Upload Data: Upload PPP documents, 941 returns, and payroll data on our secure portal.
- Credit Calculation: Get an accurate calculation of the credit you can receive from the IRS.
- Application Package: Get an expert’s help filing the 941-X Amended payroll returns.
- Get Paid from IRS: Receive an email from the IRS with your very own ERTC check.
Our ERC service offering is one of a kind since it combines the experience of experts specifically qualified in handling Employement Retention Credit claims.
This provides technical soundness that typical CPAs cannot match in standard tax preparation. We maximize your ERC claim and work hard to get your amended return for your church processed as quickly as possible so you can have funds available to you.
ERTC Assistance for Non-Profit
Employee Retention Credit (ERC) will continue to be accessible for churches, regardless of whether or not Congress decides to introduce other types of pandemic-related aid for charitable groups and churches.
If you run a tax-exempted organization, don’t put off determining whether or not you are eligible. Contact our team of ERTC by calling 360-641-7709, or arrange your obligation-free consultation by filling out the questionnaire at Federal Tax Credits ERC.
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