July 2023 Update:
The IRS has issued a fresh set of FAQs on the Employee Retention Tax Credit
(ERTC). The new “Frequently asked questions about the Employee Retention Credit” provides answers to 20 of the most common questions about ERTC eligibility and application. It’s partly an attempt by the IRS to combat and highlight the challenges raised by “ERTC mills,” groups that have popped up everywhere promising free government money.
About the Employee Retention Credit
The Employee Retention Credit (ERC) was created in March 2020 through the CARES Act to encourage employers to keep their employees on payroll during the height of the coronavirus pandemic.
To be eligible, employers, including nonprofits, must have had a decline in gross receipts in 2020 and/or 2021 compared to 2019 OR experienced a full or partial shutdown of their operations due to governmental orders in response to COVID-19.
If eligible, your nonprofit may receive up to $26,000 per employee through the ERC, even if you also received a forgivable Paycheck Protection Program loan. The Minnesota Council of Nonprofits (MCN) believes many Minnesota nonprofit employers are eligible for this credit, and it could bring hundreds of thousands of much-needed relief dollars to the nonprofit sector.
You may have heard this called a “tax credit,” and since nonprofits are “tax-exempt,” you may not think of your organization as being eligible to receive a tax credit. However, nonprofits with paid employees do pay taxes, specifically payroll taxes. Each quarter, nonprofit employers submit Form 941 to the IRS quarterly for the purpose of reporting and paying income taxes, Social Security tax, or Medicare tax withheld from employees’ paychecks and the employer’s portion of Social Security or Medicare tax. If you use a third-party administrator to process payroll, chances are they prepare your 941s automatically each quarter.