The employee retention credit (ERC) has been a lifeline for many businesses during the pandemic, providing them with relief for employee retention costs. While churches are not traditionally seen as businesses, they are eligible for this credit and can also benefit from it greatly.
The ERC was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 and has since been extended and expanded under subsequent legislation. It is a refundable tax credit that allows businesses and non-profit organizations, including churches, to offset employment taxes and receive cash refunds in certain cases.
One of the key benefits of the ERC is that it encourages employers to retain their employees during the economic downturn caused by the pandemic. For churches, this means they can continue to provide vital spiritual and community services without the added burden of potential layoffs.
Here are some ways that churches can maximize the employee retention credit:
1. Seek professional advice: The ERC can be complex, and understanding the eligibility criteria and calculating the credit amount can be challenging. It is advisable for churches to consult with tax professionals or accountants who have expertise in claiming this credit. They can help churches navigate the requirements and maximize their benefits.
2. Evaluate eligibility: To qualify for the ERC, churches must meet certain criteria. First, they should have experienced a significant decline in gross receipts compared to pre-pandemic levels. Alternatively, they can qualify if they meet the criteria for a partially or fully suspended operation due to government orders. It is important for churches to evaluate their eligibility based on these factors.
3. Review employee retention policies: The ERC is designed to incentivize employers to keep their employees on the payroll. Churches should review their employee retention policies and make adjustments if needed to ensure they meet the necessary requirements. This might involve reevaluating staffing levels, workforce planning, and adjusting employee schedules or roles if necessary.
4. Calculate the credit accurately: The ERC calculation can be complex, and churches need to accurately determine the eligible wages and the credit amount they can claim. The credit is based on qualified wages paid to employees during specific periods, with a maximum credit amount per employee per year. Having a clear understanding of the calculations can help churches maximize their credit.
5. Keep proper documentation: It is crucial for churches to maintain appropriate documentation to support their eligibility and claim for the ERC. This includes records of the decline in gross receipts, government orders impacting their operations, and employee wage details. Detailed and well-maintained documentation is essential to substantiate the credit and support any potential audits or reviews.
6. Stay informed about legislative changes: The ERC has undergone several legislative changes since its introduction, with new eligibility criteria and credit amounts. It is vital for churches to stay informed about these changes to ensure they are taking full advantage of the credit. Regularly monitoring updates from the IRS and consulting with tax professionals can help churches stay up to date with any new opportunities or requirements.
The employee retention credit has provided much-needed relief to churches and other organizations during these challenging times. By understanding the eligibility criteria, seeking professional advice, and carefully calculating and documenting the credit, churches can maximize their benefits and continue their important work in the community. Remember, claiming this credit can help churches retain their employees and sustain their operations, making it a valuable and necessary resource.