As an individual, you’re not eligible for tax credits or refunds if you didn’t file a personal tax return. Many churches have extrapolated this reasoning and concluded that since they don’t pay taxes, they’re not eligible for the Employee Retention Credit (ERC).
While their logic is understandable, their conclusion is false. Churches can qualify for the ERC if they meet certain eligibility requirements.
Suppose your church experienced a significant decline in quarterly gross receipts or was mandated by a government order to partially or fully suspend operations. In that case, you may be entitled to a credit of $5,000 per employee for 2020 and $7,000 per employee per eligible quarter for the first three quarters of 2021.
For qualifying periods, the ERC remains available for churches to claim on amended payroll tax returns, assuming they met the eligibility criteria and paid eligible wages and/or benefits during those periods.
Two ways churches can qualify for the credit.
If your church didn’t experience a significant decline in gross receipts during 2020 or 2021, you could still qualify for the ERC. Many churches have qualified not because of a loss of revenue but because they qualified due to government mandates that partially or fully restrict their operation.
To qualify for the ERC in terms of decreased gross receipts, remember that gross receipts were measured quarterly against the same quarter in 2019. Your annual revenues may have been flat in 2020 and/or 2021, but it’s quarterly performance compared to 2019 that counts. You may qualify for one quarter, two quarters, or all quarters–each quarter is measured independently.
Are churches eligible for the PPP and the ERC?
Many churches also are operating under the false assumption that they are ineligible to claim the employee retention credit because they obtained a PPP loan. While this was initially the case, the Consolidated Appropriations Act, signed into law on December 27, 2020, expanded ERC eligibility to include organizations, including churches, that received a PPP loan.
Unlike the PPC, where the church had to spend the loan dispersal on specific payroll and non-payroll items to achieve forgiveness of its PPP loan, eligible churches that obtain the ERC can spend the funding in any way they choose.
Your church could use its ERC credit to expand or enhance existing programs serving the congregation, compensate employees who have had pay increases frozen, or pay for deferred maintenance items not covered in the budget, such as adding additional parking lot lighting or re-paving walkways leading to the church.
By claiming the ERC, your church will not be subject to any more government mandates, restrictions, modifications, or oversight than you were previously.
You will need to file a form 941X, which is required to issue your tax credit. One 941X must be submitted for each quarter the church qualifies.
Fortunately, there is still time for churches that have not yet filed for the ERC. The credit can be claimed for three years after the original filing deadline. Contact Bottom Line Concepts today and speak with one of our ERC experts about your church’s eligibility.