Charitable Contributions and the ERTC: Tax-Efficient Giving

September 19, 2023
Dayes Law Firm

The pandemic shuttered hundreds of businesses nationwide, and tax-exempt organizations were hit particularly hard. Unlike large corporations, many small charities and nonprofit organizations lacked the funding to keep their doors open while the pandemic raged.

If you run a nonprofit or own a business that makes charitable contributions, you might qualify for the Employee Retention Tax Credit (ERTC). Criteria for qualifying are quite strict, but if you’re eligible, you could claim a credit worth thousands of dollars.

What Is the ERTC?

The IRS introduced the ERTC in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERTC is a tax credit for businesses that kept employees on payroll during the pandemic (2020 and 2021).

Eligible employers can claim the credit for qualified wages paid to employees, including their health insurance costs. If your business qualifies, you can claim a credit worth $5,000 per employee for 2020 and up to $7,000 per employee per quarter for 2021.

Can Nonprofits Claim the ERTC?

We often get questions about the ERTC and charities at Dayes Law Firm, and for good reason. The IRS plainly says that the ERTC is for businesses, but does that include nonprofits, such as charities and churches? The rules are confusing, so it’s little wonder that charities aren’t sure whether they qualify or not.

The good news is that charities can claim the ERTC if they meet eligibility requirements. These requirements are the same as those for all other types of businesses.

Qualifying for and Claiming the ERTC

Regardless of whether you have a nonprofit or for-profit business, you’ll need to meet eligibility requirements to claim the ERTC. You must meet at least one of these criteria:

  • Your business had to close down, either fully or partially, because of a government order.
  • Your business experienced a severe drop in gross receipts. For 2020, you must have had a drop of at least 50% compared to the same calendar quarter of the previous year. For 2021, you need a decline of at least 20%.

Even if you meet these requirements, you can only claim the credit for full-time employees, as part-time workers don’t qualify. 

For 2020, if you had fewer than 100 employees, you can claim wages paid to all of them whether they provided services to you or not. For more than 100 employees, you may only claim wages paid to employees who did not provide services to your business. This limit increases to 500 employees for 2021.

To claim the ERTC, you must fill out Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. On the form, be sure to include all qualified wages paid to eligible employees.

How Businesses Can Use the ERTC for Charitable Giving

Even if your business isn’t a nonprofit, you may use the ERTC for charitable giving. Doing so could qualify your business for more tax breaks.

The following are a few ways to use ERTC funds for giving:

  • Donating money to schools, soup kitchens, and homeless shelters
  • Giving money for disaster relief
  • Awarding college scholarships

Charitable giving has other benefits for your business. For instance, it can boost customer loyalty because many customers like doing business with a company that supports a good cause.

Let Us Help Your Business Claim the ERTC

Understanding the ERTC and charity can be tough, especially if your business or nonprofit has never claimed a credit like this. If you’re unsure whether your nonprofit qualifies for this valuable credit, reach out to Dayes Law Firm at 866-567-4510 today.