The employee retention credit (ERC) is a form of government assistance created under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help businesses and organizations keep employees on their payroll during the pandemic. While the credit provided an opportunity for substantial savings for non-profit organizations, these organizations now need to properly account for this credit.
A non-profit employer is eligible if the organization:
- Experienced a full or partial suspension of operations because of a government-ordered shutdown during 2020 or 2021.
- Experienced a decline in revenue of more than 50% during 2020 or 2021 compared to the same quarter of the year prior.
Cumulatively, eligible employers could receive a refund of up to $5,000 in 2020 and up to $7,000 in 2021, per employee per quarter.
While the ERTC was initially set to expire on January 1, 2022, the recent Infrastructure Investment and Jobs Act, approved in November 2021, accelerated the end of the credit to September 30, 2021. As a result, the maximum credit available in 2021 is $21,000 per employee.
It is important for non-profits to understand that not every organization is eligible for the ERC. The eligibility requirements may be interpreted incorrectly and inadequate documentation for calculating the credit may result in noncompliance. Therefore, it is best to maintain accurate documentation, perform a thorough assessment, and be prepared for potential audits. Noncompliance may lead to fines and having to repay received financial assistance.
For accounting guidance, please check the AICPA’s Center for Plain English Accounting article here.
If you have questions and would like a consultation on these matters, please contact us on our website. We are here to help.