The impact the COVID-19 pandemic had on nonprofits and tax-exempt organizations (TEOs) was unexpected and unprecedented. To prevent a mass unemployment crisis and to provide aid to employers, the federal government included an Employee Retention Tax Credit (ERC) in the Coronavirus Aid, Relief and Economic Security Act (the CARES Act).
Nonprofits can be considered an eligible employer for the CARES Act ERC. TEOs typically are not eligible for federal tax credits, however, the CARES Act ERC presents a rare opportunity for organizations to receive tax credits. This is a rare opportunity because the ERC, which is refundable, is taken against employment taxes.
The CARES Act made its way through Congress quickly in March 2020, and there is no legislative history or formal regulatory guidance from the Internal Revenue Service (IRS), leaving a lot of gray areas and unanswered questions for employers. As the pandemic continued, Congress updated the legislation and expanded and enhanced certain provisions of the ERC. In December of 2020, the Consolidated Appropriations Act was passed which extended the credit period to June 30, 2021 and increased the maximum ERC available to employers.
A few months later, in March 2021, the American Rescue Plan Act extended the credit period through December 31, 2021. A follow-up piece of legislation, the Infrastructure Investment and Jobs Act 2021, removed the fourth quarter of 2021 from the credit period, however, pending legislation, the ERTC...
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