Nonprofit organizations can be considered employers eligible for the CARES Act (ERC). TEOs generally do not qualify for federal tax credits; however, the CARES Act (ERC) presents a unique opportunity for organizations to receive tax credits. Yes, nonprofit organizations are still eligible for the employee retention credit even if they work with a PEO. Our specialists are familiar with this staffing structure and can help you analyze the nuances.
Employers can use ERCs to offset federal payroll tax deposits, including employees' FICA and income tax withholding components from employer federal payroll tax deposits. The ERC is a federal credit that applies to a company's quarterly payroll taxes, not to company taxes, based on the number of full-time employees (more than 30 hours) the company had during the eligibility period. Employers should talk to their tax preparers about the additional credits available to them, including the development tax credit (R&D) for research, available to non-profit companies developing new or improved business components. If you were affected by government-mandated closures at the federal, state and local levels, you are likely to qualify for the ERC.
If a non-profit organization meets the ERC eligibility requirements, you can apply for the credit by filing amended payroll tax returns through Form 941-X (pdf) for the qualifying quarters for which they qualify and submitting them to the IRS. Licensed employees do not have to receive a salary, only health care expenses qualify as salaries for the purposes of the ERC. For example, a science and technology center that had to cancel in-person events or a food bank that had to make the transition to home delivery would be excellent candidates for the ERC. Eligible organizations that consider themselves “large employers” can only apply for the ERC for salaries paid to employees for the time that employees do not provide services.
ERC specialists working for accounting firms, accounting departments and tax preparers can quickly assess whether a non-profit organization is entitled to credit and provide the necessary guidance. In addition to the ERC, the federal government has introduced other credits designed to help non-profit companies overcome the long-term effects of the pandemic and encourage both innovation and employment for U.S. workers. This favorable change expands the number of eligible nonprofit organizations that can apply for the ERC for all salaries paid to employees, including salaries paid to employees who provide services.
According to LaRose, “it's been surprising to see how many nonprofit organizations DON'T take advantage of the employee retention credit. Organizations were affected by COVID in many different ways, especially non-profit organizations and the ERC can serve as lifesavers for them.