Do Nonprofits Seeking the ERTC Follow Different Guidelines?

August 18, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC) can benefit nonprofits in addition to for-profit businesses. If your nonprofit organization is eligible, you can file a Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund with the Internal Revenue Service (IRS) to receive the ERTC based on qualified wages paid during the pandemic.

Eligibility Requirements for the ERTC

To determine if your nonprofit organization is eligible to claim the ERTC, you can perform two different tests:

  • The government mandate test: If your nonprofit operations were fully or partially shut down or restricted by a government mandate and your organization still paid qualified wages, your organization would likely be eligible for the ERTC. This would include canceled or restricted programs and services for your nonprofit operations.
  • The gross receipts test: The gross receipts test involves comparing revenue between a qualifying quarter of 2020 or 2021 and the same quarter in 2019. If the revenue is less than 50% for 2020 compared to the same quarter in 2019, your organization qualifies for that quarter. If the revenue is less than 80% of the same quarter’s revenue in 2019 for 2021, your organization qualifies.

For your nonprofit, gross receipts may include donations, grants, sales, dues, and income from rent, interest, or other investments.

Are any nonprofit categories barred from claiming the ERTC? No, certain nonprofit organizations aren’t inherently barred from claiming the credit. Any organization that regularly files a Form 941 is eligible if shut down due to national or local law and regulations during the pandemic. This includes churches, art and culture organizations, social welfare groups, nonprofit health services, and educational institutions.

Potential Nonprofit Benefits From the ERTC

Nonprofits are eligible for ERTC credits, just like for-profit businesses. Eligible nonprofits can receive up to $5,000 per employee per qualifying quarter in 2020, and up to $7,000 per employee per quarter for the first three quarters of 2021.

What Are Qualified Wages Eligible for the ERTC for Nonprofits?

Qualified wages include wages and salaries paid between March 13, 2020, through September 30, 2021, certain employer health plan expenses, and tips. To qualify, these wages must not have been paid with the funds from a Paycheck Protection Program (PPP) loan nor claimed for any other tax credit, like the Work Opportunity Tax Credit (WOTC).

If you determine that your nonprofit organization is eligible for the ERTC, you must fill out Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund to request the credit. As the law and regulations around claiming the ERTC are complex, you should speak with a knowledgeable financial adviser or nonprofit business law attorney about filing your organization’s adjusted tax return.

Can Nonprofits Claim the ERTC If They Took a PPP Loan?

While the original text of the ERTC disqualified businesses and nonprofits from claiming the ERTC if they received a PPP loan, the Consolidated Appropriations Act allowed both nonprofit and for-profit organizations to claim the ERTC. The newest language only restricts organizations from duplicating the ERTC with other tax credits for the same wages or from claiming the ERTC on wages paid by a PPP loan.

Contact an Experienced ERTC Attorney With Dayes Law Firm

Nonprofits can benefit from claiming the ERTC with an adjusted tax return for qualifying quarters in 2020 and 2021. If your organization saw a significant loss in revenue or was fully or partially shut down by local, state, or government mandates due to the pandemic, you could qualify for the ERTC. Call us at Dayes Law Firm today at (800) 503-2000 or contact us online to schedule a consultation with an ERTC tax law attorney.