The ERTC: What Nonprofits Need to Know
The ERTC was initially created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed in March 2020. The American Rescue Plan Act then enhanced and prolonged this credit, which for the majority of firms expired on September 30, 2021. However, companies that are thought of as starting recovery enterprises can be eligible for the final quarter of 2021. These companies needed less than $1 million in annual gross receipts to have begun operations after February 15, 2020. Many charitable institutions might be qualified for the nonprofits ERTC. They only need to fulfill the qualifications and standards set forth for other businesses kinds. These prerequisites consist of:
- Must have stopped operations completely or partially as a result of a government order in 2020 or 2021.
- Must have had a drop in gross receipts of at least 50% in 2020 compared to the same quarter in 2019, or a drop of at least 20% in 2021 compared to the same quarter in 2019.
Important Information Regarding ERTC for Nonprofits
Before proceeding, nonprofits that are eligible for the ERTC need to be aware of a few additional details about the credit. Such as crucial limitations and the appropriate form to utilize. Here are a few more things to keep in mind as you get ready to submit your ERTC claim.
When to File an ERTC
For all businesses kinds, the ERTC expired in 2021. However, if you meet the requirements and haven’t yet claimed it, you still have time. You have two years from the date the payroll tax was paid or three years from the first date you filed the relevant tax return, whichever comes first.
Loan Recipients for PPP
Paycheck Protection Program (PPP) loans were initially ineligible for the ERTC. But that was altered by the Consolidated Appropriations Act (CAA) in 2021. As a result, even if your nonprofit received a PPP loan, you may still be eligible for the ERTC. Simply put, you cannot apply the ERTC and PPP to the same personnel costs.
Refundable Tax Credits
The ERTC is a refundable credit, which means that the IRS will give you cash in exchange for the credit that remains after paying your payroll tax debt. Since the majority of credits are nonrefundable and simply offset your tax burden, this is significant.
Organizational Types Within the CAA
The CAA from 2021 stated that more institutions, such as healthcare organizations, public colleges and universities, and organizations created by Congress, could claim the ERTC.
It can be challenging to adhere to all these conditions and rules. However, determining your eligibility might cost your nonprofit tens of thousands or even hundreds of thousands of dollars. If you’re unsure whether to proceed, see an ERTC expert.
Procedures for Declaring the ERTC as a Nonprofits
To avoid making a mistake or incurring an IRS fine, you should always make sure you follow the proper procedure. Here are the four easy steps you need to follow to start claiming the ERTC:
1. Establish Eligibility
Before you move further with claiming the ERTC retroactively, be sure you are eligible. Read the prerequisites listed above. Depending on the functioning of your nonprofit and the amount of lost gross receipts, you might only be eligible for a few quarters of 2020 or 2021.
2. Fill out Form IRS 941-X
To make changes to your initial Form 941, you must use Form 941-X, Amended Quarterly Payroll Tax Return. If applicable, you can provide the precise amount of your credit as well as the qualified sick and family leave wage credit on this form. Backup records are not required to be submitted with your claims to the IRS. Only if they decide to audit you later will you need to provide that proof.
3. Submit Form 941-X Before the Due Date
Never pass up the opportunity to retrospectively claim the ERTC. You might have till 2024 to make a claim. Ensure that you send Form 941-X no later than three years after filing Form 941 or paying payroll tax, whichever came first.
4. Wait to Receive Your Refund
It’s time to wait right now. Don’t panic if you haven’t gotten your refund yet; refund cheques might often take a while to arrive. Any credit balance that remains after paying your payroll tax obligation will be given to you.
ERTC Pitfalls to Avoid for Nonprofits
You will receive your tax credit more quickly if you adhere to all conditions and are aware of your eligibility. Unfortunately, a lot of organizations encounter difficulties and ambiguity while going through the procedure. Doing things correctly might be particularly challenging when laws are constantly changing. For your organization, stay away from these pitfalls:
- Ask the correct questions to your tax expert regarding the ERTC. If your nonprofits does not claim the ERTC in 2020 or 2021, you should be aware of whether you have any qualifying quarters. They’ll assist you in comprehending your predicament and provide advice on if you ought to apply for the ERTC right away.
- Make sure the data you provide is accurate. To ensure accuracy, double-check the address you provided because that is where the IRS will deliver your refund check. Check your math a second time to be sure there are no mistakes, no matter how minor.
- Any IRS notices should be answered straight away. Most likely, you’ll just get the cash payment and won’t hear anything back from the IRS either your tax return or your modification regarding the ERTC. Don’t disregard it, though, if you do get a notice or a hint that you’re being audited. Keep in touch with the IRS and carefully follow all supplied directions.
Ask ERTC Professionals Any Questions You Have
For charitable organizations, the ERTC offers tremendous potential. Over the course of 2020 and 2021, you could collect total benefits of up to $26,000 per employee. To pay payroll taxes and maintain their financial stability, nonprofits require any assistance they can receive.
This post makes it very evident that there are numerous ERTC terminologies and specifications. Understanding how everything affects you is difficult. Especially if you lack internal accounting professionals.
Any inquiries you may have regarding the ERTC, including eligibility and the procedure to apply for the credit retrospectively, are answered by our team of professionals. We are the fastest and most accurate in our field, and we can guide you through the filing procedure. Starting your ERTC application online with us is simple right now.
Are you prepared to begin? To learn more about your choices for Employee Retention Credit, contact Your Part Time Accountant.