Employee Retention Credits – There Is Still Time!

Christine DiMenna & Kelsey Vatsaas

At the March Nonprofit Sustainability conference, a team from CLA (CliftonLarsonAllen LLP) will be presenting (yet again!) about employee retention credits.  Plan to join the session to hear more practical examples and guidance for those who are ERC-curious.  This article outlines some common questions for nonprofits as they explore ERC.

Is there really still time to claim employee retention credits (ERC)?

Yes! The first expiration date for the credits is April 15, 2024 for any 2020 credits.  2021 credits can be claimed through April 15, 2025!  This funding, unlike the Paycheck Proection Program (PPP) or other forms of economic relief, is not a limited pool.  It will not run out.  That said, the IRS is still taking 6-12 months to process most credits, so the cash is not fast.

My revenues were flat from 2019 – 2021, am I eligible?

Maybe. The analysis is based on gross receipts (slightly different from revenues- see question 3) and on a calendar quarter basis.  Just because you were flat or up on the year doesn’t mean you didn’t have a qualifying dip in a quarter.  Take the time to do the analysis and be sure your books are on or adjusted to a full accrual basis when conducting the analysis.

What is “gross receipts” and how do I calculate/tie it out?

  • Gross receipts is reported in Box G on page 1 of your form 990. For some organizations it mirrors total revenues, but for many there are a few adjustments.  Most common include
    • Investments – if you have investment activity, gross receipts:
      1. DOES NOT include realized or unrealized gains/losses.
      2. DOES include proceeds from sales of investments. (Hint: you don’t usually book those in your GL, so you need to go to your investment statements to find it by quarter.)
    • In kinds – gross receipts includes in-kind contribution of assets (that’s you, food banks!) but does not include in-kind contributions of services or use of space.
  • Event Expenses – the 990 nets out event expenses for total revenue purposes, but gross receipts includes all gross revenue, so add back in event expenses if you back them out in your GL.
  • PPP – The IRS clarified that you do NOT need to include PPP or Shuttered Venue Operator grants as gross receipts, so you can back those out of the quarter(s) in which you recognized the revenue. Note that to tie to your form 990 you will need to add this back in.

What gross receipts drops do I need to qualify?

  • In calendar 2020, a 50% drop in one quarter is needed to trigger eligibility.
  • In calendar 2021, a 20% drop in one quarter is needed to trigger eligibility.
  • For 2020, one eligible quarter automatically gets you a second, and you stay eligible until the quarter after you are back up to at least 80%.
  • For 2021, you can use the prior quarter to qualify if the prior quarter had a 20% drop.
  • You can use a 20% or greater drop in Q4 2020 to trigger Q1 2021, but it does not gain you any additional quarters after that.

If I don’t qualify under gross receipts declines, can I qualify based on shut-downs?

  • Yes – eligibility is “mix and/or match” – you can qualify under shut down for some periods, gross receipts for others, or just one of the methods.
  • Eligibility under shut-down is available to nonprofits, though some versions of shut downs are harder to interpret for nonprofits from available IRS guidance.
  • When considering shut-downs, ask the following questions:
    1. Was one or more of my programs fully shut down under a government order?
    2. If so, was that program “more than nominal” meaning in the same period of 2019, either 10% or more of hours worked org-wide were in that program, or 10% or more of org-wide revenues were specific to that program?
    3. Do I have access to a specific government order requiring that program to be fully closed? And what dates did it cover?
    4. If you have programs that were impacted (eg: had to operate at reduced capacity) you may find a pathway to eligibility, though guidance is far less clear here and we would suggest discussing the facts and circumstances with a professional.

I’m getting inundated with calls from firms telling me they can get me lots of ERC $. What do I do?

There are a LOT of providers out there – many of whom sprung up out of nowhere to help businesses and nonprofits pursue credits. Some are very reputable and offer high quality services – others a bit more questionable.  Do your due diligence; consider asking the following questions:

  • Under what eligibility criteria do you believe I’m eligible?
  • Does your firm follow the IRS notices for guidance, or just the language in the CAA and ARPA legislation?
  • Do your estimated credits properly account for restricted funding and PPP?
  • If we work with you, when do we sign the contract and lock in?
  • What is your fee structure and when will we have to pay it? (note: many providers charge a % of the credit, which may incentivize aggressive eligibility, and can become a significant cost fairly quickly).
  • What are the deliverables from your work? (We would recommend looking for a provider who will include an analysis of eligibility with orders if under shut-down, tie-out of gross receipts to 990s, detailed calculation of the credit by employee, and 941-X if they will prepare it for you).
  • What is your company’s history working with organizations like us on tax credit programs (both ERC and others prior to the pandemic)

Has this piqued your interest in further exploring ERC for your nonprofit?  Register to join the session on March 28, 2023, at the conference!  If you would like to consult directly with the CLA team on ERC, complete this form and mention Kelsey Vatsaas or Christine DiMenna and we will set up a time for an initial consultation with our team!

Guest Authors

Thank you for our colleagues at CLA for authoring this guest post!

Christine DiMenna, Signing Director

Kelsey Vatsaas, CPA, MBA

CLA is Propel Nonprofits’ auditor.

Guest Contributors

Christine DiMenna
Signing Director CLA
Kelsey Vatsaas

Guest Contributors

Christine DiMenna
Signing Director CLA
Kelsey Vatsaas