How to Claim the Employee Retention Tax Credit (ERTC) Using IRS Form 941
The recent American Rescue Plan passed by Congress opens up the Employee Retention Tax Credit (ERTC) for more organizations to be eligible for $5000 per employee in 2020 and $7,000 per employee in 2021 per quarter (i.e. $28,000 each). Previously, this program was not available to organizations that received the Paycheck Protection Program, but now you can claim the ERTC even if you received the PPP in 2020 or 2021, and it can be claimed retroactively. More information on the Employee Retention Tax Credit is available here from the National Council of Nonprofits. To qualify, organizations must experience some full or partial shutdown of operations due to COVID-19, and a revenue decline of 50%+ quarterly revenue reduction in 2020 compared to the same quarter in 2019, or 20%+ quarterly revenue reduction in 2021 Q1 or Q2 compared to the same quarter in 2019.
IRS Form 941 is the form you regularly file quarterly with your payroll. To claim the Employee Retention Credit, utilize line 11C in Form 941, and Worksheet 1 that it references is on the last page of the Form 941 instructions. Utilize the Worksheet to calculate the tax credit. On submission, only Form 941 is required, and there is no backup documentation of the losses to submit to claim the tax credit, although this information should be kept on file for audit.
We are grateful to the National Council of Nonprofits who worked to advocate to make these tax credits available to nonprofits, not just for-profits. In the past, most tax credits have left nonprofits in the cold, and we are glad that this new payroll tax credit is a mechanism that is a huge benefit to nonprofits!
More information on regularly required filings by nonprofit organizations can be found in our newly updated Legal Requirements Checklist from the Standards for Excellence Program.