Schools, including both public and private schools, were among the hardest-hit businesses during the COVID-19 pandemic. Many had to close their doors and transition to a virtual-only learning model, which came with plenty of challenges for students and teachers alike.
The Employee Retention Tax Credit, or ERTC, can provide some relief to schools that kept employees on payroll during the pandemic. Here’s what to know about the ERTC and educational institutions.
Do All Educational Institutions Qualify?
The IRS doesn’t put restrictions on what types of educational institutions are eligible for the ERTC, which means any school can qualify so long as they meet certain requirements. This can include:
- Private schools: A private school takes tuition money from families rather than securing funds from the government, as public schools do. When government orders forced businesses to close, many private institutions suffered especially hard.
- Trade schools: Trade schools offer hands-on learning environments, which, as you might expect, led to big problems during the pandemic. Many trade schools struggled to sanitize desks and equipment, and others had to limit the number of students because of social distancing requirements.
- Colleges and universities: Many colleges saw a big drop in enrollment throughout the pandemic. Quite a few students preferred in-person classes over virtual lessons, especially given the cost of tuition.
- Daycares: Anyone who has ever put a child in daycare knows how often that child brings home a cold. With COVID-19 being incredibly contagious, many daycares were forced to close or limit how many children they could accept.
Understanding Eligibility for the ERTC and Educational Institutions
Schools may qualify for the ERTC if they meet one of the following requirements:
- The school had a large drop in gross receipts (at least 20% for 2021 and at least 50% for 2020).
- The school had to close down, partially or fully, because of a government order due to COVID-19.
Let’s discuss that second requirement more. Your school might meet this criterion if any of the following apply:
- You had to switch to a partial or full virtual learning system.
- You had to space desks further apart, impacting how many students you could have in the room.
- You had to close down to sanitize the school.
- There was a COVID-19 outbreak in your area, and the government forced you to close.
- One or more of your suppliers shut down because of the pandemic, which impacted the school.
How Much Is the ERTC Worth?
For eligible businesses, the ERTC pays up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for 2021 (a maximum of $21,000 for the first and second quarters of the year and a maximum of $28,000 for the third quarter).
How Schools Can Claim the Credit
If you believe your school is eligible, you can claim the credit by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The IRS does not accept this form online as it does other types of tax returns, so you must submit it by mail.
Contact Dayes Law Firm for Further Guidance
Understanding eligibility for the ERTC and educational institutions can be a real challenge, so if you still have questions, Dayes Law Firm wants to help. Give us a call at (800) 503-2000 for a free consultation. We will tell you whether you’re eligible and help you claim your payroll tax credits.