March 27th, 2022, marks the second anniversary of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), the $2.2 trillion economic stimulus bill that authorized the Employee Retention Credit (“ERC”). The ERC is a refundable payroll tax credit based on wages paid to employees at organizations that either (1) have been fully or partially shut down due to a government order OR (2) had gross receipts decline a certain percentage relative to gross receipts in the same calendar quarter of 2019.
The ERC was designed as a payroll tax credit, to help employers impacted by the COVID-19 pandemic, large and small, for-profit and nonprofit alike. However, while it has been common for Congress to provide tax incentives to for-profit businesses during challenging economic times, nonprofit organizations have not had the same luxury. That is, until now.
What we have learned since March 2020 is that many nonprofit organizations remain unfamiliar with the ERC or don’t believe they qualify for the credit. Even though studies have shown that nonprofit organizations were severely impacted by the pandemic and will remain impacted for the foreseeable future.
According to the “National COVID-19 Community Impact Survey” released by the Federal Reserve System on October 12, 2021, nonprofit organizations, and the communities they serve, have suffered in many ways as a result of the pandemic, including:
- Almost 70% of respondents indicated COVID-19 significantly disrupted the entities they represent during the peak of distress.
- Almost 70% of respondents indicated that demand for their services increased compared with pre-pandemic levels.
- Approximately 35% of respondents noted an increase in their ability to provide services, whereas slightly less than half (46%) noted a decrease in their ability to serve.
- Almost 70% of respondents indicated that their expenses had increased compared to pre-pandemic levels.
- More than half of the respondents said the pandemic had a negative impact on their entities’ financial health and 60% of those respondents indicated their entities could operate for less than a year in the current environment before exhibiting financial distress.
Has your nonprofit organization been severely impacted by COVID-19? Did you keep your doors open, serving your constituency despite the many restrictions placed on you by local, state, and federal agencies? The findings of the study highlight several key factors that make the ERC something worth taking a closer look at.
Things to consider:
During the pandemic did you have:
- Significant disruptions
- Increased demand for services
- Increased expenses
- Negative financial impacts
Did you face operational impacts such as:
- Move services remote or hybrid
- Change your hours of operation
- Cancel fundraising and social events
Taxpayers Should be Proactive Now
While there is still time for taxpayers to claim the ERC now is a perfect time to consult a tax specialist for additional information regarding qualification for the credit.