Refundable tax credits available for small businesses, NPOs & churches
The ERC - Employers Tax Credit - is a refundable tax credit for businesses, NPOs, and churches that continued to pay employees throughout the COVID-19 pandemic. Why am I talking about it now? Because many businesses and organizations that are entitled to it, still have not filed.
The credit is available to employers whose income fell significantly between March 20, 2020, and December 31, 2021. For 2020, looking quarter to quarter against 2019, if revenue fell by at least 50% in one quarter or if your enterprise was required to close by the mandatory order of a federal, state, or local government agency - your business, church, or NPO could qualify. For 2021, still looking quarter to quarter against 2019 for a revenue reduction of 20% or more, or by mandatory order, your entity could qualify.
Even for those businesses that received a PPP loan, a tax credit could still be out there for you. So long as any wages used to calculate your PPP Forgiveness are not included in your ERC calculation, PPP is not an automatic exclusion.
How much could your business receive? I am so glad you asked! For 2020, ERC can equal up to $5,000 per employee of employer tax returned back to you for the year. In 2021, the credit significantly increases to up to $7,000 per quarter per employee or $21,000 max for the year.
So what’s the catch?
To determine eligibility and file for your ERC, you will probably need to hire an accounting or tax professional with experience in preparing quarterly employer tax returns. It is a pretty complicated calculation. But I caution you to beware. There are a lot of companies seeking to profit off of this high-dollar credit who are not charging for preparing the tax credit return and instead are requesting up to 35% of the amount to be refunded. Beware. While the calculation takes some work and concentration, in my humble opinion, it is not worth a high percentage of the funds due to your organization. Instead, find a reputable firm that is willing to charge a reasonable professional fee to complete the work.
While the Internal Revenue Service (IRS) is not providing a timeline for processing these returns, others have reported it taking as long as 9 months before funds have been refunded.
Remember if you think your church, business, or NPO might be entitled to receive this credit, act now. The current deadline for filing your 2020 credit is March 31, 2024. The deadline to file for your 2021 credit is March 31, 2025. However, with Congress changing and repealing expiring COVID relief benefits, it may be in your best interest to file sooner than later.
Lastly, the IRS has 5 years from the date you file your return to audit it. Be sure to keep copies of all your paperwork in case it is needed at a later time.
For more information on the ERC, please reach out to DMB and Sankofa Consulting. We would be glad to help.
Articles of Interest
https://www.irs.gov/coronavirus/employee-retention-credit
https://www.experian.com/blogs/employer-services/who-qualifies-for-the-erc-tax-credit/
