ERTC: Potential Free Money For Churches

ERTC Money for Churches

As a direct consequence of the COVID-19 pandemic, many charitable organizations only survived because they complied with government directives asking them to cease operations or limit services temporarily. 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 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.

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ERC for Churches/Ministries

Since tax-exempt organizations like ministries are also considered to be engaged in business or trade concerning the entirety of their operations, if a ministry 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 payroll tax credit, particularly ERC.

ERTC Free Money for Churches

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 wider 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 decided to extend it until the end of 2021, which was the original expiration date.

ERTC Free Money for Churches

With the new regulations in place, 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.

ERC Criteria for Churches/Ministries

During any calendar quarter since the COVID-19 pandemic, if your church experienced a significant decline in gross receipts or 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—intended to support your ministry in recovering from the financial impact of the pandemic. Note that your non-profit organization may qualify for four separately calculated ERCs.

ERC YearMinimum CreditReported Form
2020$5,000 Per EmployeeForms 941-X (Q2-4)
2021 (Q1)$7,000 Per EmployeeForm 941-X (Q1)
2021 (Q2)$7,000 Per EmployeeForm 941-X (Q2)
2021 (Q3)$7,000 Per EmployeeForm 941-X (Q3)

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 have the potential to collect thousands of dollars that will assist you in recovering from the rocky ride that your finances have been on over the last two years. Considering there is a lot of uncertainty about the requirements and the application procedure, we’re here to clarify things.

ERC is NOT a Loan

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. It is not a loan; thus, there is no need for repayment of any kind. Unlike non-profit and tax-exempted organizations like churches or ministries, the refundable credit amount is greater than the amount of 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.

Examples to be Considered

  • 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.

Gross Receipts Test

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 equivalent 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.

Enhanced Benefits

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. This 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 YearQualified Wages (%)Qualified Wages Limit
2020 CreditsQualified Wages (50%)$10,000 Per Employee
2021 Credits (Q2-3)Qualified Wages (70%)$10,000 Per Employee/Q

PPP Loan Interplay

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.

ERC ChangesPrior Law
3/13/20 – 12/31/20
New Law
3/13/20 – 12/31/20
New Law
 1/1/21 – 12/31/21
Interplay with PPP LoanNo ERCBoth Available (Double Dipping Not Allowed)Interplay with PPP
Maximum Creditable $10,000/Year$10,000/Year$10,000/Quarter
Eligible Wages (%) 50%50%70%
Maximum Credit$5,000/Employee$5,000/Employee$28,000/Employee
Large Employer 100+ Employees100+ Employees100+ Employees

How to Claim ERC for Church – A Process Walkthrough

Take the following steps to claim ERC for church.

  • 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 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 an ERTC expert like [Client’s Website] 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 the ten simple questions to begin your ERTC claim.
  • 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 certified public accountants, attorneys, and payroll professionals. This provides a level of technical soundness that typical CPAs cannot match in income tax preparation. We maximize your ERC during the PPP Covered Period and guarantee that your church can access its ERC as quickly as possible.

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The Final Cut

Employee Retention Credit (ERC) will continue to be accessible, 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. Get in touch with our team of ERTC by calling 360-852-4818, or arrange your obligation-free consultation by filling out the questionnaire at Federal Tax Credits.

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