Nonprofit organizations play a vital role in our communities, providing essential services and support to those in need. However, many nonprofits struggle with financial sustainability, especially during times of economic uncertainty. One way to help strengthen nonprofit sustainability is by leveraging the employee retention credit (ERC), a valuable tax credit that has been expanded and extended in response to the COVID-19 pandemic.
The ERC was initially introduced as part of the CARES Act in March 2020 to help businesses retain their employees during the economic downturn caused by the pandemic. However, nonprofits were initially excluded from claiming the credit. Fortunately, the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 expanded and extended the ERC to include eligible nonprofits, making it an important tool for helping nonprofits maintain financial stability.
The ERC is a refundable tax credit that allows eligible employers to claim a percentage of qualified wages paid to employees during a designated period. For nonprofits, the credit is based on wages paid to employees, including health benefits, and can be claimed against the employer’s share of Social Security taxes. The maximum credit amount per employee is $5,000 for 2020 and $7,000 per employee per quarter for 2021.
To qualify for the ERC, nonprofits must meet certain eligibility criteria, including experiencing a significant decline in gross receipts or a full or partial suspension of operations due to government orders related to COVID-19. Nonprofits can claim the credit for qualified wages paid from March 13, 2020, through December 31, 2021.
Leveraging the ERC can provide much-needed financial relief for nonprofits, allowing them to retain their valuable employees and maintain essential services for their communities. The credit can help offset the costs of retaining staff during challenging times, ultimately strengthening the organization’s sustainability and resilience.
In addition to providing financial relief, the ERC can also help nonprofits maintain a strong workforce and retain talented employees. By offering the credit as a benefit to employees, nonprofits may be able to attract and retain top talent, which is crucial for delivering high-quality programs and services to their clients.
To take advantage of the ERC, nonprofits should work with their financial and legal advisors to determine their eligibility and calculate the credit amount. They should also ensure that they are in compliance with the regulations and requirements for claiming the credit. With the extended and expanded ERC, nonprofits have a valuable opportunity to strengthen their financial sustainability and ensure the continuity of their important work in the community.
Ultimately, leveraging the employee retention credit can help nonprofits navigate the challenges posed by the COVID-19 pandemic and build a stronger, more sustainable organization for the future. By retaining their employees and maintaining essential services, nonprofits can continue to make a positive impact in the communities they serve. It is essential for nonprofit leaders to stay informed about available resources and take advantage of opportunities like the ERC to support their organization’s financial health and sustainability.