Are Nonprofit Organizations Eligible for the Employee Retention Credit?

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Unless you’re employed by a nonprofit organization, you may not know how financially devastating the COVID-19 pandemic was to them. Though they may be nonprofit organizations (NPOs), their employees still depend on ongoing revenue for their livelihoods. And revenue declines for NPOs in 2020-2021 were just as prominent as they were for for-profit entities.

For example, the YMCA has faced adversity many times since it opened its doors in 1844, and it was challenged again during the pandemic. Because of physical distancing and other mandates, their swimming pools and exercise classes–substantial revenue generators for them–were suspended.

The YMCA kept operations going and employees on staff by providing grab-and-go lunches, grocery delivery, and freshly prepared meals. The Y’s team also developed virtual programs for its members. They kept employees engaged and on the payroll to the best of their ability.

NPOs like the YMCA can be considered eligible employers according to the CARES Act, which was passed in March 2020. Though not typically eligible for federal tax credits, the CARES Act provides a rare opportunity to capitalize on the Employee Retention Credit (ERC), a refundable credit taken against employment taxes.

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Two eligibility tests nonprofits must pass to qualify for the ERC

To be considered an eligible employer and qualify for the ERC, a nonprofit must pass either of these two tests:

  • The Gross Receipts Test
  • The Government Orders Test

NPOs must pass at least one of these tests. Passing both is not required.

 The Gross Receipts Test (GRT)

A nonprofit organization is eligible under the GRT if, during the 2020-2021 calendar quarter in question, it experienced a significant decline in gross receipts.

For example, it would be eligible if its gross receipts declined at least 50% in any quarter of 2020 compared to the same quarter in 2019, or if the decline in Q1 to Q3 2021 is at least 20% compared to that same quarter in 2019.

The Government Orders Test (GOT)

Another means for a nonprofit to be eligible for the ERC would be by qualifying under the GOT. They qualify if operations were partially or fully suspended during the calendar quarter due to orders from a government authority that limited commerce, travel, or group meetings due to COVID-19. Those orders could have come from federal, state, or local government bodies.

One typical example of a partial suspension of operations is something that frequently happened in 2020-2021: governmental restrictions on mass gatherings and social distancing mandates preventing in-person fundraisers and other events critical to the NPO’s annual revenue.

How NPOs can claim the Employee Retention Credit

Many nonprofit organizations and leaders remain unaware of the ERC and their potential eligibility. Fortunately, there is still time to claim the ERC.

Because of the complexity of the Employee Retention Credit, nonprofits should consult with an organization specializing in the ERC to determine their eligibility and maximize the claim for their organization.

Schedule your complimentary 15-minute consultation today with Bottom Line Concepts. We’ve helped almost 20,000 organizations recover over $3.2 billion in credits. Let us help your nonprofit receive the funds it’s legally entitled to.

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