What is the Employee Retention Credit (ERC)?
The Employee Retention Credit (ERC) is a refundable payroll tax credit for wages paid and health coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19-related governmental order. This government order affected most if not all churches by limiting attendance at most in-person services. For 2020, each organization could receive a maximum credit of $5,000 per qualified employee. In 2021, the maximum credit increased to $7,000 per qualified employee per quarter.
The ERC can be:
- Claimed quarterly to help offset the cost of retaining employees.
- A refund of previously paid payroll taxes.
- Claimed up to three years from the date in which your quarterly payroll return was filed.
- NOTE: Typically ministers and priests are not counted for this credit due to their wages deemed ineligible.
Can you claim the ERC if you receive a PPP loan?
Yes! This overlap was not permitted when the CARES Act was originally enacted, and organizations in need of cash infusions
during 2020 more frequently turned to PPP loans as a source of funds, rather than the ERC. Importantly, the Consolidated
Appropriations Act makes the ability to claim the ERC and receive PPP loans retroactive to wages paid after March 12, 2020. You can’t use the same wages for both programs.
Case Study
2020: Two non-clergy employees were paid an annual salary of $40,000 each (i.e., $10,000 per calendar quarter). Assuming the church meets the applicable eligibility requirements, it could receive an ERC of $5,000 per employee.
2021: The employees were paid the same annual salary. Assuming the church meets the applicable eligibility requirements, it could receive an ERC of $14,000 total per employee for the first two quarters of 2021.
| 2020 Total $10,000 |
2021 Total $28,000 |
2020/2021 Total $38,000 |
If you furloughed your employees but continued to pay their health insurance, you can claim the ERC. Furloughed employees do not have to receive wages—health care expenses alone qualify as wages for purposes of the ERC.
We’re here to help!
Call Kelly O’Farrell at (320) 214-2959 to discuss your situation.
