Is the ERTC Available to Fund Public Schools?
The ERTC is a tax credit available to certain businesses that experienced a full or partial suspension of operations due to the pandemic. But if you operate a public school, is your business eligible for this credit?
Originally, the ERTC was unavailable to government entities and their instrumentalities, including public schools. However, the Consolidated Appropriations Act expanded the ERTC for 2021, and your public school may be eligible.
Learn more about the ERTC for public schools and how to determine eligibility.
ERTC Under the CARES Act
The federal government introduced the Employee Retention Tax Credit (ERTC) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This stimulus bill passed on March 27, 2020, providing aid and direct economic relief to those negatively impacted by the pandemic.
Under this act, almost every type of business and non-profit organization can claim employee retention credits if they had W-2 employees on the payroll in 2020 and paid payroll taxes to those employees. The CARES Act excludes federal, state, and local governments from eligibility. Neither are religious organizations that do not contribute payroll taxes eligible.
Because of this rule, public schools generally cannot claim the ERTC for 2020. But private and independent schools may be eligible as long as they meet the ERTC eligibility requirements, which include:
- Experiencing a full or partial suspension of operations
- Experiencing significant revenue losses compared to the same calendar quarter in 2019
- Paying qualified wages to employees
The ERTC payroll tax credit can reduce your business’s taxable income.
The ERTC Under the CAA
While public schools are ineligible for the ERTC under the CARES Act, in 2021, the Consolidated Appropriations Act (CAA) expanded eligibility. Effective January 1, 2021, ERTC eligibility expanded to include the following organizations operated by government entities:
- Medical facilities
As a result, if you operate a government-owned public school, such as a college or university, your business may be eligible. You can claim the ERTC for public schools for the first three quarters of 2021 but not for 2020.
Important Considerations for Government Entities
The aggregation rule for the ERTC still applies to government entities claiming the ERTC for 2021. Under this rule, businesses must aggregate the employees for all entities under common control.
If your government-owned school has more than 500 employees, you may not be eligible for the ERTC under this rule. You would also only be allowed to claim the credit for wages paid to furloughed employees.
Additionally, when calculating a “significant decline in gross receipts,” to determine eligibility, you must calculate all the gross receipts for the government entity, not just your individual school. This rule complicates eligibility significantly.
How Do You Determine Eligibility for the ERTC for Public Schools?
The Employee Retention Tax Credit has specific and complex eligibility requirements for government entities like public schools. However, claiming this credit incorrectly can land you with tax penalties or even charges of tax fraud.
Before claiming the ERTC, ensure you fully understand your eligibility. Research eligibility requirements thoroughly. If you are eligible, diligently calculate your credits to avoid inaccuracies.
You will also do well to work with an experienced tax professional throughout your ERTC application. A CPA or tax attorney can help you determine your eligibility, calculate your credits, and even file your claim on your payroll tax returns.
Dayes Law Firm: Your ERTC Partners
Do you need help claiming the ERTC for public schools? Our tax attorneys at Dayes Law Firm can provide personalized guidance through every step of your claim. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation.