As the ERC filing deadline approaches, we would be remiss not to inform churches of the valuable opportunity to take advantage of this tax incentive. The COVID-19 pandemic, a global crisis that took the world by storm, brought about unprecedented challenges for various sectors of society. Among the most affected were organizations that typically gather in person, including churches and houses of worship... Mandated shutdowns and restrictions aimed at curbing the virus' spread profoundly impacted churches worldwide, testing their resilience and adaptability.
The Financial Strain COVID-19 Placed On Churches:
Reduced Revenue Streams The pandemic had a significant financial impact on churches due to the sudden loss of tithes, offerings, and other donations that form the bedrock of their financial stability. Smaller congregations that rely heavily on weekly collections to cover operational expenses such as salaries, utilities, and maintenance felt the greatest impacts due to governmental orders that caused them to suspend in-person worship services. Additionally, many churches may have had specific one-time in-person events that brought in significant revenue prior to the pandemic… and they could not do so during government shutdowns.
Technological Adaptation In response to the restrictions, churches did their best to adopt digital tools to continue their ministry. This shift required investments in technology infrastructure, including cameras, microphones, high-speed internet, and online streaming platforms. Some churches even hired or trained personnel to manage these new online initiatives. While this technological adaptation allowed them to stay connected with their congregations, it also posed additional financial strain.
Outreach and Community SupportChurches have always been at the forefront of providing aid to the vulnerable in their communities. However, the pandemic presented unique challenges in this regard. Traditional outreach programs (i.e., food drives, shelters, and counseling services) were reimagined to adhere to safety protocols. Many churches redirected funds and resources to address pandemic-related needs, such as providing food and assistance to those affected by job losses and health crises.
Deferred Projects and Missions Due to financial uncertainty, numerous churches postponed or canceled planned projects, renovations, and mission trips. Resources allocated for expanding community spaces, enhancing facilities, or supporting global missions were redirected to cover immediate needs and maintain essential operations.
Churches May Benefit From The Employee Retention Credit
The Employee Retention Credit (ERC) is a payroll tax credit introduced by the U.S. government as part of the COVID-19 relief measures to assist businesses and organizations, including churches, that were adversely affected by the pandemic.
The ERC May Help Churches Impacted By The Pandemic:
Financial Relief The primary benefit of the ERC for churches is that it provides a refundable payroll tax credit and payroll taxes are typically the one tax churches pay. Due to the nature of the ERC, if a church qualifies, it can claim this tax credit. The money claimed can help offset financial strain caused by reduced donations, decreased revenue from canceled events, and costs associated with adapting to new technologies for virtual services.
Retaining Staff Most churches did their best to retain their staff during the pandemic even though in some cases, the staff members couldn’t serve the community as before. The ERC offers an incentive for churches that kept their employees on the payroll during mandated shutdowns or during times of decreased revenue.
Eligibility Criteria To be eligible for the ERC, churches need to meet specific criteria. This criteria includes demonstrating a qualifying decline in gross receipts or experiencing a full or partial suspension of operations due to government orders. Given the restrictions and shutdowns associated with the pandemic, many churches may qualify for this credit.
Credit Amount The ERC allows eligible employers to claim a percentage of gross qualified wages paid to employees during 2020 and 2021. With the maximum amount being $26,000 per employee retained, the credit - cash to the church- can significantly offset the financial impact of retaining employees during the pandemic.
Expanded Eligibility The eligibility criteria and rules for claiming the ERC were expanded with the Consolidated Appropriations Act. Churches that received a Paycheck Protection Program (PPP) loan can also qualify for the ERC, provided they do not use the same wages for both PPP loan forgiveness and ERC calculations.
How Can Churches Claim The ERC?
The ERC is still claimable and given the complexities associated with tax law, churches should consult with tax incentives experts who are well-versed in the law and subsequent IRS guidance.
Does Your Church Qualify For The ERC? It's Worth Looking Into!
The Employee Retention Credit can play a crucial role in providing financial relief to churches impacted by the pandemic. By offering incentives for employee retention and aiding in covering payroll costs, the ERC can help churches maintain their operations, continue to provide essential care to their congregations, and navigate the challenges presented by the pandemic.
To discuss your church's particular situation, please contact Tax Credit Collective at (214) 414-9881 or visit www.taxcreditcollective.com/claim-the-erc.