Churches that have between 5 and 500 employees are eligible for the ERC tax credit in 2023. The government program was created to help businesses and nonprofits that either:
1. Had to close their doors any time between 2020 and 2021
OR
2. Had a loss of 20% gross receipts in any quarter of 2020 or 2021.
If either of the above apply to you, your church qualifies for the ERC tax credit (even if you got the PPP loan). Fill out the form below to find out exactly how much you qualify for and how you can receive your funds.
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Religious organizations that received Paycheck Protection Program loans also qualify
Religious organizations that received loans through the Paycheck Protection Program (PPP) also qualify for the Employee Retention Credit (ERC). The ERC provides churches with additional cash for wages paid to qualified employees. To receive this credit, employers must fill out Form 941-X and prove their qualified wages.
To claim the ERC, employers must calculate the amount of qualified wages, which may include up to $10,000 in health insurance costs incurred by eligible employees. Employers can then claim the credit up to three years after the tax filing.
Businesses that were affected by COVID-19 are also eligible to receive ERC. For the first quarter of 2020, employers can claim a tax credit of up to $10,000 per quarter for each employee. In 2021, eligible employers can claim a tax credit of up $28,000 for each qualified employee.
ERC can be claimed on an amended Form 941-X. It applies to employees who work at least 30 hours per week. However, ordained clergy and pastors are not counted in the calculation.
If you believe your church qualifies, you will need to contact your local attorney and/or CPA for advice. A trusted payroll provider can also help you understand the ERC.
Depending on your church’s situation, you may be able to benefit from both programs when retroactively. In particular, you should check with your local attorney to ensure you’re not in violation of federal laws.
There are other programs that religious institutions can participate in. Faith-based organizations can apply for a loan through the Small Business Administration (SBA). They must meet the same requirements as other applicants.
Religious institutions can use the proceeds from these loans for payroll costs, mortgage interest, or utilities. Additionally, loan proceeds can be turned into grants.
Clergy compensation is not ordinarily considered FICA wages
Most churches don’t levy a tax on the income of their ordained clergy, but this doesn’t mean you won’t be paying the IRS. The IRS has specific rules for ministers, which you need to follow if you want to save your hard-earned cash. This also means that you need to get a good tax preparer on your payroll.
Clergy taxes can be confusing, but it isn’t impossible to do your taxes right the first time. The IRS has a nice website dedicated to clergy taxes. Using this site, you can easily find out how much you owe in the first place. Once you have your tax bill in hand, you can start a savings plan to reduce the amount you owe. Remember to keep track of your expenses and to take advantage of the aforementioned tax-free housing allowance.
Taking the time to learn about clergy tax rules will pay off in the long run. If you don’t plan ahead, you could end up paying a fortune in taxes. Besides, you will have more time to devote to your congregation, which is the most important thing. A tax preparer will be more than happy to help you figure out exactly what you owe. Getting a second opinion from an expert will also give you a leg up on the competition.
A good tax preparer will have a number of questions to answer for you, including which tax otios have the best chance of reducing your taxable income. In order to save money, you might want to look into an Accountable Reimbursement Plan. With this option in place, you can claim the credit for your business expenses.
Documentation required for ERC eligibility
The Employee Retention Credit (ERC) can represent a substantial financial benefit for churches. However, not all churches are maximizing the ERC’s full benefits. Church leaders should consult with a professional for guidance.
In order to qualify for the ERC, churches must meet a number of requirements. For instance, they must have made eligible payments on wages and benefits. A church may also be entitled to use the ERC funds to pay off PPP loans.
ERC eligibility is also dependent upon the nature of the employer. An employer with more than 100 employees will be eligible to take advantage of ERC. They can claim a credit of up to $7,000 per employee in the first two quarters of 2021. However, they must continue to satisfy the eligibility requirements through the end of the first quarter of 2020.
If you’re unsure about your eligibility for the ERC, contact a Cherry Bekaert tax advisor. They can assist you with determining your eligibility and help you process any existing claims.
It’s worth it to look into the IRS’s frequently asked questions. While this information can’t serve as legal authority, it’s important to note that the most commonly asked question is not the most accurate answer.
You should also check your IRS Notice 2021-20. This document provides more detailed information on ERC eligibility.
Another factor to consider when claiming the ERC is whether your business was affected by the COVID-19 mandates. Certain businesses were suspended as a result of the government’s restrictions. Even if your business was not suspended, you might be affected if you did not experience a qualifying decline in gross receipts.
Some churches may have ceased operations due to the COVID-19 mandate. If your church is experiencing a significant decline in quarterly gross receipts, you may be able to claim the ERC in the form of a refund on an amended Form 941-X.
Up to $33,000 per employee in ERC funds
If you are the leader of a church, you may have heard about the Employee Retention Credit. The credit is designed to encourage businesses to keep employees when there is a business interruption. It is a fully refundable payroll tax credit for eligible employers.
While the credit is a substantial financial benefit for eligible entities, it can be confusing to understand. An IRS advisor can provide guidance, but churches should also consider hiring legal counsel. Having an experienced team of professionals can help with the complicated form.
A significant change in ERC was made by the Relief Act of 2020. This act changed the eligibility thresholds for the tax credit. Specifically, eligible businesses must have gross receipts of less than $1 million in 2019.
A maximum of $7,000 per employee is available in the first two quarters of 2021. Businesses that already are recovering can claim the credit retroactively for hardships during 2020 and the first three quarters of 2021.
If your church qualifies, you will be able to use the money to provide employee pay increases, deferred maintenance, and other programs. However, the ERC does not apply to the employer’s share of Medicare or Social Security taxes.
Although the credit was originally limited to small organizations, the Consolidated Appropriations Act of 2021 repealed the prohibition against using ERC funds. For churches that do qualify, the maximum amount is now $33,000 per employee.
Those who want to know more about the Employee Retention Credit should consult with a qualified legal advisor. There are many churches that have used the credit to pay off PPP loans. Many religious organizations are now receiving substantial cash benefits.
