news article
IRS Employee Retention Credit
August 15, 2023 / By Rev. Susan Ranous, Certified Public Accountant / .(JavaScript must be enabled to view this email address)
If you haven’t already started the process of applying for an Employee Retention Credit (ERC), you need to do so now. You may have received telephone calls, letters, or emails from people/companies that are promising they can help you apply for these credits and you can receive “$28,000 per employee.”
While that could be true, the amount most churches would be entitled to is most likely much less because that amount is the maximum credit and assumes that every employee was making at least $10,000 per year during 2020 and $40,000 per year during 2021. In churches, that is usually just not the case. Many of these companies also charge a substantial amount of money to prepare the necessary paperwork for the claim.
Of course, it does take some work and multiple computations and spreadsheets, but the process isn’t horribly difficult. Essentially:
- quarterly payroll per employee has to be computed for the second, third, and fourth quarters of 2020 and the first and second quarters of 2021.
- Then the maximum “qualified wages” have to be computed per employee per quarter, and then the maximum credit applied per employee per quarter.
- Once those computations are done, then amended quarterly payroll forms have to be prepared, applying for the credit. These forms are filed with the Internal Revenue Service (IRS), who has to approve the credit and provide the “refund.”
There are two “reasons” this credit is allowed. The employer church:
- was affected by government orders imposing capacity restrictions on services and other gatherings; or
- suffered significant declines in gross receipts.
While many employers have some familiarity with the ERC, confusion exists around the qualifications and application processes. Because our churches were closed or had to have reduced attendance, they can qualify for this credit even though many churches did not experience significant declines in gross receipts, thanks to the generosity of our people! Tax exempt organizations that experience 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 qualify as Eligible Employers for purposes of the ERC. The period that the employer pays qualified wages lasts as long as the government mandates are in effect.
The maximum credit allowed is essentially $5,000 per employee for 2020 (but would be limited to 50% of allowable income, which may be much less than $10,000 for the year).
The maximum credit is $7,000 per employee per quarter for the first and second quarters of 2021 (but would be limited to 70% of allowable income, which may be much less than $10,000 per quarter).
There are credits available for the third and fourth quarters of 2021, but there are additional requirements to qualify.
If you have any questions, contact the Rev. Susan Ranous, Certified Public Accountant, at susanranous@unyumc.org.
Click the following links for additional informational resources:
Wespath: IRS Tax Credits (Employee Retention Credit)—Applies to Churches
Employee Retention Credit | Internal Revenue Service (irs.gov)