How Can the ERTC Influence Charitable Giving Strategies?

January 9, 2024
Dayes Law Firm

When exploring eligibility and uses of the ERTC, many businesses have encountered some confusion about the ERTC and charitable giving. Can businesses use the ERTC to donate to charitable organizations? On the flip side, can charitable organizations qualify for the ERTC?

Here is more about the ERTC philanthropy connection, both with applying for the ERTC as a charitable organization and how for-profit businesses can use the ERTC for charitable contributions. 

Availability of the ERTC for Charitable Organizations

Nonprofit organizations can qualify for the ERTC under certain conditions. If your nonprofit experienced temporary or total shutdowns due to COVID-19-related restrictions, you may be eligible for this credit. You’ll also need to show that your business experienced a significant decline in gross receipts during each quarter of 2020 and 2021 that you’re applying for the credit.

The one distinction between nonprofits and for-profit businesses in terms of ERTC eligibility is that nonprofits don’t pay income taxes as 501(c)3 organizations. Instead, you will need to claim the ERTC on the payroll taxes you paid during qualifying quarters in 2020 and 2021. 

Talk to a tax attorney about whether your charitable organization is eligible for the ERTC.  

Using the ERTC in Your Charitable Giving Strategy

Many for-profit businesses wonder about the ERTC and charitable giving. Can your business use some or all of your credits to give back to charity? 

The answer is yes. Your business can use the money from your tax credits however you see fit. 

Tax Benefits for Charitable Giving With ERTC 

You should consider the tax incentives for charitable contributions with the ERTC. Your business may deduct qualified contributions of up to 25% of your taxable income. This means that if your business reports $100,000 of taxable income, and you donated $25,000 to a charity, you could deduct that $25,000 from your tax liability. 

Before making any charitable contributions and ERTC applications, speak with a tax attorney about how to maximize your tax incentives for your contributions. 

Creating a Charitable Giving Strategy With Your ERTC Money

If your business doesn’t currently have a charitable giving strategy, but you know you want to give some or all of your ERTC money to a nonprofit, follow these tips for strategic charitable giving:

  • Find a cause that aligns with your business values. Choosing a charitable organization carefully can ensure that you donate to an organization that aligns with your business’s goals and values. You can share news about your donation as a marketing strategy. 
  • Consider how much to give. Do you want to donate all of your ERTC money or just a portion of it? Are you trying to maximize your tax deductions through this donation? Use your answers to determine how much to donate.
  • Research and Document your donation. The organization you donate to should give you a receipt of your donation to use for tax purposes. You can check on the 501(c)3 (nonprofit) status of an organization at Candid.org. You can also review past tax returns of a nonprofit and research their quality. If you don’t automatically receive a tax receipt, request a copy for your records. 

Seek ERTC Assistance From Dayes Law Firm 

Making charitable donations with your employee retention tax credit (ERTC) money can allow you to give back to your community without cutting into your normal revenue. But you’ll want to approach the ERTC and charitable giving strategically to maximize your benefits — and we can help. 

Additionally, if you run a nonprofit organization, we can help you understand your ERTC eligibility and guide you through the application process.At Dayes Law Firm, our tax attorneys offer personalized ERTC assistance to businesses like yours. Contact us today at 800.503.2000 for your free consultation.