Join us on January 11, 2022, as we discuss the Employee Retention Program and how nonprofit organizations can qualify for these potentially valuable payroll tax credits and claim them, even if they have received Paycheck Protection Loans.
Although the Employee Retention Tax Credit (ERTC) expired at the end of September 2021, eligible employers can still retroactively claim the credit if they haven’t already.
What is the ERTC?
The ERTC is a fully refundable tax credit created by the Coronavirus Aid, Relief, and Economic Security Act (CARES) in March 2020. It was designed to encourage employers to avoid layoffs and keep employees on their payroll during the COVID-19 pandemic.
In March 2021, the American Rescue Plan Act (ARPA) amended and expanded the credit to allow small employers that received a Paycheck Protection Program (PPP) loan — including nonprofits – to also claim the ERTC.
In 2020, an employer could receive 50% of the first $10,000 of qualified wages paid per employee in each qualifying quarter. In 2021, the amount was increased to 70%.
Cumulatively, eligible employers could receive a refund of up to $5,000 per employee in 2020 and up to $7,000 per quarter in 2021.
While the ERTC was initially set to expire on January 1, 2022, the recent Infrastructure Investment and Jobs Act, approved in November 2021, accelerated the end of the credit retroactive to October 1, 2021.
The change in date reduces the maximum credit available from $28,000 to $21,000.
Who is eligible?
Employers are eligible for the ERTC if they:
- Experienced a full or partial shutdown of operations as a result of government orders during 2020 or 2021.
- Saw a revenue decline of more than 50% during 2020 or 2021 compared to the same quarter of the year prior.
- Are a “recovery startup” business that was launched after February 15, 2020, for which the average gross annual receipts do not exceed $1 million.
While there is no size limit on eligibility, small and large employers are treated differently under the ERTC:
- For employers with 100 or fewer full-time employees, all employee wages qualify for the credit regardless of if the business is open or subject to a shutdown.
- For employers with more than 100 full-time employees, qualified wages include only wages paid to employees when they are not providing services due to COVID-19 related reasons or shutdown.
How long do employers have to claim the credit?
The ERTC credit can be claimed on amended payroll tax returns as long as the statute of limitations remains open, which is three years from the date of filing, says Brent Johnson, co-founder, and CEO of Clarus R+D, a maker of software for claiming tax credits.
Employers who did not claim the ERTC on their original IRS form 941 may retroactively claim the credits using IRS Forms 941-X.
What to do to account for the early termination
If your business reduced its employment tax withholdings in October and November in anticipation of receiving the ERTC, you will need to pay those taxes back.
While the “late” deposits may be subject to a penalty from the IRS, Certified Public Accountant firm Walker & Armstrong “anticipates that the IRS will issue guidance to help employers comply and, hopefully, provide relief from the late-deposit penalty.”
The September 30, 2021, expiration date does not apply to “recovery startup businesses.” These businesses may continue to claim the ERTC credit until December 31, 2021.
ABOUT THE AUTHOR
Lia Tabackman is a freelance journalist, copywriter, and social media strategist based in Richmond, Virginia. Her writing has appeared in the Washington Post, CBS 6 News, the Los Angeles Times, and Arlington Magazine, among others. She writes weekly nonprofit-specific content for 501c.com.