Nonprofit organizations of every type – charities, religious organizations, advocacy groups – are eligible to receive the Employer Retention Credit. At Spider ERC, we specialize in working with nonprofits – one of our partners founded and directed a nonprofit organization for several years – and we understand the special needs such organizations have. Here’s an introduction.
The rules for nonprofits are the same as for businesses. Employers qualify for the ERC if they had W2 employees on payroll during 2020 and 2021, and if they either (a) experienced a drop in quarterly gross receipts compared with the same quarter in 2019, or (b) had to partially or fully suspend operations due to government orders.
But while the rules may be the same, the way they play out for nonprofits is different.
First, what does a drop in gross receipts mean for a nonprofit? Well, gross receipts includes any form of revenue: donations, program fees, basically anything that brings in money for the organization. Remember, the IRS is interested in gross receipts, not profits. It doesn’t matter that a religious organization or activist group doesn’t pay out any profits to shareholders. It only matters that receipts went down at least 70% in 2020 and 50% in 2021.
Second, suspension of operations means that your pre-pandemic activities were curtailed due to government orders. That might mean capacity limits at a synagogue or church, or cancellation of fundraising events – anything that limited your organization’s ability to fulfill its mission and do its work. This is even true if you successfully ran events online: the point is that your pre-pandemic operations were limited to a more than nominal extent (which the IRS defines as 10%).
There are some exceptions. If your offices were closed but everyone worked from home just as easily, you won’t qualify on that basis – you have to document how not being in the office limited your organization’s work. Also, remember that mask mandates don’t count, and that many religious organizations received exemptions for state governments – unfortunately, those same exemptions that allowed churches to stay open during Covid may now limit their ability to obtain the ERC. Finally, remember that voluntary actions don’t count. It may have been a good idea to maintain social distancing, but you can only qualify for the ERC if the government said you had to do so.
Probably the most important consideration for nonprofits obtaining the ERC, though, is being able to properly document the basis for your claim. Charitable organizations are accountable to their members, donors, board, and other stakeholders. In any financial dealings, they have to go beyond the letter of the law to ensure that the organization’s finances and reputations are beyond reproach. Unlike some in our field, SpiderERC doesn’t make outsized promises about the ERC, and after the claim is complete and the credit issued, we provide every client with a detailed dossier setting out the exact amounts claimed, the basis for qualification for each quarter of coverage, and the specific government orders and IRS rules that govern the claim. Whether the IRS elects to review a filing or not, you’ll have all the information you need to properly substantiate your claim. Other firms may stretch the rules to get you a bigger recovery, but we are equally focused on ensuring that you don’t face any trouble down the road.
Remember, the ERC isn’t some get-rich-quick scheme. It’s a government program designed to compensate businesses and organizations for keeping their employees on payroll during the pandemic. We work with nonprofits to ensure that you can file your claim with confidence and integrity, knowing that you’re obtaining the credit to which your organization is entitled so you can use those funds to further your mission. Take your first step by filling out this pre-qualification form to see if your organization is eligible.