By Matt Krenik
During the pandemic, the federal government offered several forms of financial support to struggling businesses. However, if you are part of a nonprofit organization, you may not have thought your organization was eligible. The good news is that nonprofits are not excluded and your organization may still be able to take advantage of Employee Retention Credits (ERC), but you need to act quickly!
The ERC is a tax credit against payroll taxes owed. Since all organizations have payroll, for profit or not, attaching the credit to payroll taxes was an easy way to include 501(c)(3) businesses in this stimulus. Additionally, the ERC was updated on December 27, 2020 to allow businesses who obtained the Paycheck Protection Program (PPP) to ALSO take advantage of the Employee Retention Credit, without double dipping. This change opened up an opportunity for thousands of companies that have since taken advantage of both the PPP and the ERC, including nonprofits.
1. Government Order
Tax exempt organizations that experienced fully or partially suspended operations due to orders from an appropriate governmental authority to limit commerce, travel, or group meetings due to COVID-19 can often qualify as eligible employers for purposes of the ERC. Wages that were paid during the entire time the government mandates were in effect may qualify.
If government mandates limited group meetings, this can be a key qualifier for some organizations, though not the only route to qualification.
2. Gross Receipts Test
The Gross Receipts Test is widely used in industries outside of nonprofits as a marker of qualification. The ERC Gross Receipts Test for 2021 reviews the extent gross receipts of the organization decreased compared to the same calendar quarter of 2019. If there is a decrease of more than 20%, then the organization has a strong chance to qualify for the 2021 ERC.
The Gross Receipts test for 2020 is much the same, aside from the required decrease. If there is a downward shift of more than 50% in gross receipts, then the organization has a strong chance to be qualified for the 2020 ERC.
Perhaps your nonprofit wasn’t affected by a government ordered shutdown. However, attendance or donations may have still suffered and the subsequent drop in revenue would make the gross receipts test viable when determining qualification.
HIREtech, an Equifax company, has completed more than 700 quarterly studies representing more than 289 separate nonprofit, religious, and other 501(c)(3) charitable organizations since the ERC was established. It is not uncommon for them to qualify for all six (6) available quarters, bringing much needed cash flow back into the 501(c)(3).
Through those studies, HIREtech has successfully qualified and retained more than $41 million dollars in Employee Retention Credits for 501(c)(3) organizations in 25+ states (and counting) across the nation*.
Non-profit A had 76 employees and has qualified for $552,750.15 in ERC, across 2020 and Q1 2021
Non-profit B had 82 employees and has qualified for $776,456.82 in ERC, across 2020 and Q1 & Q2 2021
Non-profit C had 15 employees and has qualified for $133,049.25 in ERC, across 2020 and Q1 & Q2 2021
The subject matter experts at HIREtech, an Equifax company, have a proven track record in helping businesses like yours with their team of professionals. Let our team help you with the legwork to see if you qualify and help you retain these payroll tax credits.
To learn more about ERC credits and how Equifax Workforce Solutions and HIREtech could help you, listen to our recent webinar Employee Retention Credits - Do You Qualify? or contact us for more information.
*HIREtech 2021 data
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.