The Employee Retention Credit is a tax refund that is available to churches who kept employees on the payroll during the pandemic of 2020-2021.
Initially, eligible employers had to choose between the Paycheck Protection Program or the Employee Retention Credit. Then in 2021, Congress allowed eligible employers to apply for both. So the two programs can be used together to maximize benefits, but they cannot be used to compensate churches twice for the same wages in any quarter of either 2020 or 2021. Importantly, the PPP was a loan that converted to a grant if certain conditions were met. However, the ERC is a refundable payroll tax credit.
The following information was compiled from multiple sources, and it is provided on a general information basis only. Churches should consult with their respective accountants for specific financial advice.
The time frame includes March 13, 2020-Dec. 31, 2021, if a state mandate was in effect.
Consequently, many South Carolina Baptist churches may qualify.
2020 tax year (March-December)
• No more than 100 employees; and
• a government mandate that prevented operations, either in hours or service capacity — or revenue was less than 50 percent of 2019 gross receipts for any quarter.
2021 tax year (January-December)
• Fewer than 500 employees; and
• a government mandate that prevented operations, either in hours or service capacity — or revenue was less than 80 percent of 2019 gross receipts for any quarter.
A church planted in 2020 may qualify for the ERC as a recovery startup business if it:
• Began after Feb. 15, 2020; and
• annual gross receipts were under $1 million; and
• one or more W2 employees were on the payroll.
(1) The credit is only available for any wages paid to full-time and part-time staff for whom the church paid FICA. Churches do not pay FICA for pastors, thus the pastor’s wages do not qualify in calculating the ERC refund. FICA wages do not include pre-tax deductions for health insurance, dental insurance, FSA contributions, etc. (employee share). However, FICA wages do include any of the employee’s contributions to a retirement account under a salary reduction agreement.
(2) Qualifying wages include wage amounts paid by the qualifying employer to its employees plus health plan expenses.
(3) Wages used for any quarter to qualify for the Paycheck Protection Program cannot be used to qualify for an Employee Retention Credit for that same quarter.
(4) For 2020, qualifying wages are capped at $10,000 per employee annually, and the credit amount is 50 percent (or $5,000 per employee). For 2021, qualifying wages are capped at $10,000 per employee per quarter, and the credit amount is 70 percent (or $7,000 per employee per quarter). Recovery startup nonprofits are limited to $50,000 in credit for all employees per calendar quarter.
(5) A church school or preschool that has its own EIN and files its own IRS Form 941 each quarter, has to file for the ERC separately from the church.
How to claim the ERC
The Employee Retention Credit must be claimed by using the IRS Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.” A separate 941-X will be filed for each calendar quarter for which Employee Refund Credit is being claimed. Whoever processes the church payroll will be familiar with how to complete these forms.
2020 (2nd, 3rd, 4th quarters): A corrected IRS Form 941-X must be submitted by April 15, 2024
2021 (1st, 2nd, 3rd, 4th quarters): A corrected IRS Form 941-X must be submitted by April 15, 2025
Helpful IRS links
https://www.irs.gov/irb/2021-34_IRB#NOT-2021-49 (see Part III)
https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act (more FAQs)
The Internal Revenue Service is backed up in processing ERC requests. It may take several months before a refund check is mailed or the amount is transferred electronically to your account.
Will Hall is executive editor of the Baptist Message of Louisiana.