Employee Retention Credit

What Nonprofits Need to Know About the ERC

September 2023 Update: The Internal Revenue Service has announced a moratorium on processing new Employee Retention Credit (ERC) applications until at least 2024 because of the recent flood of fraudulent applications for the refundable payroll tax credit.

This means that nonprofits that were eligible for the ERC for 2020 or 2021 and have not yet filed for the tax credit will need to wait until at least early 2024 for the IRS to process their applications. While payment delays will likely continue for claims nonprofits have already filed, the IRS appears to be prioritizing closing this backlog while also calling on Congress to speed up the deadline for taking the pandemic-era relief.  

Also, last week, the IRS issued a new Eligibility Checklist to help nonprofits and businesses avoid scams by better assessing whether they meet the qualifying standards for the ERC.

Learn more about the ERC and nonprofits from IRS answers to FAQs and the National Council of Nonprofits.

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. 

Webinar on ERC for Nonprofits

In an effort to help nonprofits better understand ERC and the potential fit for their organization, MCN was pleased to partner with CliftonLarsonAllen to present "Employee Retention Credits for Nonprofits: Common Questions and Scenarios on July 20.

To see a recording or webinar materials, please use the links below:

Webinar Recording

Webinar Slides

Webinar graphic

Reported Obstacles to Exploring ERC Eligibility

A survey at the Nonprofit Finance and Sustainability Conference in April 2023 verified five major barriers organizations face related to the ERC:
  1. Knowledge: “We don’t know enough about the ERC to determine if we are eligible.”
  2. Information: “We don’t have the organizational data and/or financial information we need to determine if we are eligible and apply or the ERC.”
  3. Time: “We don’t have time to determine if we are eligible and apply for the ERC.”
  4. Connection to professional help: “We don’t have a relationship with a professional who can help us understand our eligibility and apply.”
  5. Money: “We don’t have the money to hire a professional to help us determine our eligibility and apply.”
ERC Vendor image

Connecting Your Nonprofit to Professional Help

If a lack of time, connection to professional help, or money are barriers, knowledgeable and reputable vendors exist to help. MCN been talking to firms that specifically help organizations determine their eligibility for various tax credits, including the ERC. As a result of those conversations, we’ve developed a short list of providers who are both knowledgeable and offer competitive fees. The list is available by request only; to get a copy, please complete this form.

Request ERC Provider List

Additionally, please see the FAQ for our advice on finding a provider and the questions to ask before signing a contract with them.

Important message about Synergi Partners

MCN has heard from several of its members that they have received emails and voicemails from representatives of Synergi Partners stating that they are “working with nonprofit organizations that are affiliated with or members of the Minnesota Council of Nonprofits to educate them” on the ERC.

This is not true. MCN has no relationship with Synergi Partners now and will not have one in the future.

Have more questions about ERC?

Employee Retention Credit FAQ

The ERC is additional pandemic recovery support available from federal government. It was first introduced in March of 2020 to incentivize employers to keep paying their workers during the pandemic.

Employers who experienced a drop in receipts or who were affected by full or partial shut-down on account of government orders may be eligible for this credit. Specifically, when it comes to receipts, for 2020, if your organization experienced a 50 percent drop in one quarter (as compared to the same quarter in 2019) or, for 2021, if your organization experienced, a 20 percent drop in one quarter (as compared to the same quarter in 2019), looking into the credit is definitely worth your time.

Absolutely! The Minnesota Council of Nonprofits believes that hundreds of Minnesota nonprofits may be eligible without realizing it. We also believe that other organizations may think they are eligible but are not sure what to do about it. This credit could represent millions of dollars in additional support for the nonprofits and the work that they do to support the community.

We recommend that you reach out to up to three firms to discuss their ERC services, including your audit firm and your payroll provider.  A third option might be a firm that specifically helps organizations determine their eligibility for various tax credits, including the ERC. MCN has talked with several firms with experience in working with nonprofit organizations on their ERC calculations; to receive this list, please complete this form.

When calling any vendor for any service, it is helpful to know if they have served organizations that are similar in nature to your organization. Specifically for the ERC, your questions should include:

  • Have you worked with nonprofits to claim the ERC? How many?
  • Have you worked with Minnesota entities? How many?
  • What’s your fee? When it is due?
  • What types of assurances do you provide that your work (both the calculations and the determination of eligibility) will be accurate in case of an IRS audit? Will you provide audit defense?

Your organization — not your ERC preparer — is responsible for any information that is provided to the IRS. The IRS has noted that many firms have popped up specifically to help employers file the ERC and may be incorrectly advising organizations to claim the Employee Retention Credit (ERC) when they may not qualify.

Some third parties are taking improper positions related to taxpayer eligibility for, and computation of, the credit. Nonprofits who claim the ERC are responsible for the information reported; the preparer is not. Improperly claiming the ERC could result in nonprofits being required to repay the credit along with penalties and interest.

This is not true. MCN has no relationship with Synergi Partners now and will not have one in the future.