Employee Retention Credit for Churches and Nonprofits (2023)

P3 Cost Analysts / Cost Reduction / November 15, 2022

With the world slowly returning back to normal, it almost feels like we’re finally putting the pandemic behind us. However, many churches and nonprofits are still feeling the effects financially. These organizations are the same ones that often played a major part in helping communities of low to moderate income by providing necessary services during the pandemic.

Feeling an increased demand for many of the services provided without an equal increase in funds and staffing made surviving the pandemic a challenge for many nonprofits and churches. This prolonged imbalance has negatively affected the financial health of many organizations.

There was some relief to be found through the Employee Retention Credit Tax Credit (ERTC). However, the buzz surrounding the ERTC seemed to focus on small businesses, and many leaders didn’t realize that they could use the Employee Retention Credit for nonprofits and churches as well.

For more info on ERTC for nonprofits or churches, check out our simple and easy-to-understand guide here!

What Is the Employee Retention Tax Credit for Nonprofits and Churches?

The Employee Retention Credit for churches and nonprofits allows certain eligible organizations with employees on payroll that were negatively affected by the pandemic to claim a refund through a payroll tax credit.

The idea behind this credit was to help promote the retention of employees in small businesses as well as nonprofits during the most financially difficult parts of the pandemic. It was developed as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help organizations continue paying their employees in an effort to help the U.S. economy recover.

The specifics can be rather confusing, especially for nonprofits and churches. The ERTC has experienced multiple amendments and changes as the government reacted to changing economic conditions. Now that the dust has settled, the ERTC can be applied to wages paid up until October 1, 2021 (with the exception of recovery startup businesses that retain the original deadline of January 1, 2022).

How Does the Employee Retention Credit for Churches and Nonprofits Work?

There are three main steps to claim the ERTC for nonprofits and churches. While a majority of nonprofits and churches are likely eligible, the process of determining eligibility and which wages qualify can be complicated. Consider working with ERTC tax experts like P3 Cost Analysts to save time and headaches and make sure you file correctly the first time.

Step 1: Determine Eligibility

The eligibility requirements have changed multiple times since the program was launched, making things even more confusing. Fortunately, the ERTC is credited through payroll taxes, so nonprofit organizations are included in this stimulus. Nonprofits and churches can qualify through suspended operations due to government mandates or the Gross Receipts Test.

Government Mandates

If your organization experienced complete or partial shutdowns due to government orders that limited your ability to continue operating, then you likely qualify for the ERTC. Examples of this include reduced hours of operations, canceled events, vendor disruptions, and other disruptions of normal operations.

Gross Receipts Test

If your church or nonprofit experienced a decline in gross receipts, you likely qualify for the ERTC. The government considered a significant decline for 2020 to be revenues less than 50 percent of the same quarter in 2019, and for 2021, revenues less than 80 percent of the same quarter in 2019.

Step 2: Calculate Credits

Calculating your potential credits is the most complicated step of the process. This is because the guidelines are different for 2020 and 2021, plus you can’t include any wages that were paid for using a PPP loan.

Qualifying wages are those that were paid to employees between March 12, 2020, and September 30, 2021. Nonprofits and churches can look at any compensation subject to FICA taxes and qualified health expenses. This means that wages paid to ministers and employees of churches who don’t participate in the FICA/Medicare program cannot be included in the calculation.

For stipends earned in 2020, the maximum creditable wages were 50 percent of the first $10,000 of qualified wages per full-time employee per year. So each qualified employee could qualify for a maximum credit of $5000 in 2020.

These numbers changed in 2021. For this year, the maximum creditable wages were 70 percent of the first $10,000 of qualified wages per full-time employee per quarter. So each qualified employee could qualify for a maximum credit of $21,000 in 2021.

Note that these figures represent organizations that had 100 or fewer employees in 2020 and 500 or fewer employees in 2021. Larger organizations can only claim ERTC for employees that were paid but were not working during shutdowns.

Step 3: File for ERTC

The Infrastructure Investment and Jobs Act announced an early end to the Employee Retention Tax Credit program in November 2021. So, the ERTC program officially ended on September 30, 2021, eliminating the fourth quarter from eligibility.

However, churches and nonprofits may still retroactively claim up to three years after filing Form 941 for any financial quarters where they were eligible. While this technically gives your organization until 2024 to claim credits for 2021, we don’t recommend waiting that long. The government may stop awarding credits when the funds run out.

With so many changes throughout the program, consulting with professionals like P3 Cost Analysts to help you file will ensure you claim the maximum possible credit. This will also help ensure that you include all the proper documentation needed for approval.

Note that if your organization reduced withholdings in quarter four of 2021, you are required to pay those taxes back.

How P3 Can Help Organizations Apply for the ERTC

There are a lot of moving parts in this process! However, you definitely don’t want to miss out on putting thousands of dollars back into your nonprofit or church just because the process seems overwhelming.

Even if you’re unsure if your organization is eligible for the ERTC for nonprofits and churches, we highly recommend reaching out to an expert team like P3 Cost Analysts. We have helped many other organizations, restaurants, and other small businesses claim the tax credits that they are entitled to. We’ve been working through the ERTC process since it was first announced, so we know exactly how to help your organization maximize your return.

With our no-risk process, there should be nothing holding you back. If it turns out your organization isn’t eligible, you won’t owe us a thing. We only charge a percentage of the money we can get back, so it’s truly a win-win. Our tax experts will get to you with results within two weeks of giving us the information we need. From there, we’re ready to file your claim when you are.

FAQ About ERTC for Churches and Nonprofits

Do I have to pay back the ERTC?

No, churches and nonprofits do not have to pay the Employee Retention Credit back.

Can we still claim the ERTC if we obtained a PPP loan?

Yes, you can utilize both. However, any payroll expenses paid for by PPP loans are not considered eligible for ERTC nonprofit or church wages.

Is the ERTC only for churches and nonprofits?

No. Any trade or business affected by the government-mandated shutdown may be eligible. This includes small to mid-sized companies, educational organizations, churches and other religious organizations, nonprofits, and tribal entities.

Is our church eligible even if we do not file a tax return?

Yes. The base tax form for claiming ERTC for churches is the quarterly Form 941, which many churches file to report income taxes, social security, and Medicare tax that are withheld from paychecks. However, minister wages and payments to employees of churches that do pay toward the FICA/Medicare program are not eligible.

Our church or nonprofit did not see a significant decline in gross receipts. Are we still eligible for the ERTC?

Yes, potentially. There are two ways to qualify – a significant decline in gross receipts or a partial suspension of operations due to government mandates.

We only have a few employees on payroll. Is it still worth it to file for the ERTC for churches or nonprofits?

Yes. One individual employee could potentially earn your organization thousands of dollars in credit depending on the specific circumstances. If you’re in doubt, consult an expert to see what financial benefits you could see by filing the ERTC for nonprofits and churches.

Let P3 Help at No Risk to Your Organization

While the deadline for claiming the ERTC isn’t until three years after the original filing date, you shouldn’t wait to get the ball rolling. Eventually, the money allotted for this credit will run out, so it’s best to file your claim as soon as possible.

This process can seem daunting for nonprofit organizations, especially for churches that don’t typically work with many tax-related forms or processes. Luckily for you, P3 has a team of experts that can make the process straightforward.

Contact one of our tax experts today, and let’s get started.

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