By Will Hall, Baptist Message executive editor
WASHINGTON (LBM) – The Employee Retention Credit is a tax refund that is available to churches who kept employees on the payroll during the pandemic of 2020-21.
Initially, eligible employers had to choose between the Paycheck Protection Program or the Employee Retention Credit. Then in 2021 Congress allowed eligible employers to apply for both. So, the two programs can be used together to maximize benefits, but they cannot be used to compensate churches twice for the same wages in any quarter of either 2020 or 2021. Importantly, the PPP was a loan that converted to a grant if certain conditions were met. However, the ERC is a refundable payroll tax credit.
The Louisiana Baptist Message has compiled the following information from multiple sources, and it is provided on a general information basis only. Churches should consult with their respective accountants for specific financial advice.
The timeframe includes March 13, 2020, through December 31, 2021, if a state mandate was in effect.
The following Louisiana proclamations were issued by Governor John Bel Edwards:
— On March 13, 2020, all public gatherings of 250 or more persons were prohibited.
— On March 23, 2020, all public gatherings of 10 or more persons were prohibited, and a “general stay-at-home order” went into effect.
— On March 31, 2021, “religious services held by churches and other faith-based organizations” were exempted from “crowd size limitations.”
Consequently, many Louisiana Baptist Churches will qualify from March 2020 through March 2021.
2020 tax year (March – December)
— No more than 100 employees; and
— a government mandate that prevented operations, either in hours or service capacity, OR revenue was less than 50 percent of 2019 gross receipts for any quarter.
2021 tax year (January – December)
— Fewer than 500 employees; and
— a government mandate that prevented operations, either in hours or service capacity, OR revenue was less than 80 percent of 2019 gross receipts for any quarter.
A church planted in 2020 may qualify for the ERC as a recovery startup business if it:
— Began after February 15, 2020; and
— annual gross receipts were under $1 million; and
— one or more W2 employees were on the payroll.
(1) The credit is only available for any wages paid to full-time and part-time staff for whom the church paid FICA. Churches do not pay FICA for pastors, thus the pastor’s wages do not qualify in calculating the ERC refund. FICA wages do NOT include pre-tax deductions for health insurance, dental insurance, FSA contributions, etc. (employee share). However, FICA wages do include any of the employee’s contributions to a retirement account under a salary reduction agreement.
(2) Qualifying wages include wage amounts paid by the qualifying employer to its employees plus health plan expenses.
(3) Wages used for any quarter to qualify for the Paycheck Protection Program cannot be used to qualify for an Employee Retention Credit for that same quarter.
(4) For 2020, qualifying wages are capped at $10,000 per employee annually and the credit amount is 50 percent (or $5,000 per employee). For 2021, qualifying wages are capped at $10,000 per employee per quarter and the credit amount is 70 percent (or $7,000 per employee per quarter). Recovery startup nonprofits are limited to $50,000 in credit for all employees per calendar quarter.
(5) A church school or preschool that has its own EIN and files its own IRS Form 941 each quarter, has to file for the ERC separately from the church.
HOW TO CLAIM THE ERC
The Employee Retention Credit must be claimed by using the IRS Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.” A separate 941-X will be filed for each calendar quarter for which Employee Refund Credit is being claimed. Whoever processes the church payroll will be familiar with how to complete these forms. However, some sample documents are linked in the “ADDITIONAL INFORMATION” section below.
2020 (2nd, 3rd, 4th quarters)
— A corrected IRS Form 941-X must be submitted by April 15, 2024.
2021 (1st, 2nd, 3rd, 4th quarters)
— A corrected IRS Form 941-X must be submitted by April 15, 2025.
The Louisiana Baptist Convention obtained permission for the Baptist Message to publish an Excel Spreadsheet and an annotated IRS Form 941-X created by the Baptist State Convention of North Carolina and provided to North Carolina Baptist churches. Please note that some information does not apply to Louisiana Baptist churches because of differences in the two states’ mandates.
Helpful IRS links:
https://www.irs.gov/irb/2021-34_IRB#NOT-2021-49 (see Part III)
https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act (more FAQs)
Finally, know that the Internal Revenue Service is backed up in processing ERC requests. It may take several months before a refund check is mailed or the amount is transferred electronically to your account.
The Louisiana Baptist Foundation is a partner with MinistryWorks in payroll services.
MinistryWorks also offers churches a discounted rate for providing assistance in filing for the ERC tax refund:
2020 credits: $250 per employee for which the church receives a credit, up to the lesser of $15,000 or 5% of the total credit.
2021 credits: $350 per quarter per employee for which the church receives a credit, up to the lesser of $15,000 or 5% of the total credit.
An initial payment of $500 is required upon completion of the calculation of the ERC. This payment will be applied to the balance owed to MinistryWorks which is due within 15 days upon receipt of the ERC tax refund from the Internal Revenue Service.
The MinistyWorks point of contact for Louisiana Baptists is Tonya Miller, email@example.com, or (866) 215-5540, extension 5356.