Grants

Article Dean Dorton

Written by Kaydee Ruppert, Accounting & Financial Outsourcing Manager at Dean Dorton

The Employee Retention Tax Credit (ERTC), often referenced to as just ERC, is confusing a lot of nonprofit employers. If it’s confusing to you, you’re not alone! There are many nuances to this credit, but the following outline will assist you in navigating and maximizing the opportunity presented by ERTC.

The version of ERTC applicable to 2020 is slightly different than the version adopted for 2021, so they are addressed separately below for greater clarity. Also note that receipt of a Paycheck Protection Program (PPP) loan in either round does NOT prohibit your organization from taking advantage of the ERTC if you otherwise qualify, although any wages used for the ERTC cannot be used for PPP loan forgiveness.

2020 ERTC

Organizations that qualify for ERTC in 2020 may still apply for a refund or tax abatement applicable to the credit.

Determine Qualified Time Period
There are two methods for determining your organization’s qualified time period for 2020 ERTC. If both apply, you should select the one that covers the greater number of days. If neither apply, your organization is not eligible for ERTC for 2020.

If applicable, your organization’s qualified time period matches the dates during which operations in 2020 were at least partially suspended because of government orders limiting commerce, travel or group meetings due to COVID-19. The government issuing the order(s) that suspended your operations may be local, state or federal, but it must be a government order and not self-imposed. The starting date for suspended operations cannot be before March 13, 2020. The start and end dates of your qualified time period using this method of calculation will likely not coincide with the start or end dates of any given quarter.

If applicable, gross receipts for your organization must have significantly declined for one or more quarters in 2020 as compared to 2019. To determine eligibility under this method, first determine total gross receipts by quarter for 2019 and 2020. Divide the 2020 quarter totals by the respective 2019 quarter totals. If the result is less than .5, note the first day of that quarter per the chart below. That is the start of your significant decline in gross receipts. Compare subsequent quarters until you reach a result that is greater than .8. Note the last day of that quarter per the chart below. That is the end date of your significant decline in gross receipts.

Start and End Date for ERTC Sample Periods: 2020 ÷ 2019
Q1 3/13/2020 – 3/31/2020

<.5

 >.5

>.5
Q2 4/1/2020 – 6/30/2020

<.8

 <.5

>.5
Q3 7/1/2020 – 9/30/2020

>.8

 >.8

<.5
Q4 10/1/2020 – 12/31/2020

>.8

 >.8

>.8
Sample Period of Significant Decline in Gross Receipts

3/13/2020 – 9/30/2020

 4/1/2020 – 9/30/2020 7/1/2020 – 12/31/2020

Calculate Qualified Wages by Employee
The following process applies only to nonprofits that averaged 100 or fewer full-time employees in 2019. If your organization averaged more than 100 full-time employees in 2019, be aware that your calculation of qualified wages is different.

Qualified Time Period in 2020 Complete individually for each employee.
Q1 Q2 Q3 Q4  
Calculate wages paid by employee for all employees paid during qualified time periods in each quarter of 2020. Wages eligible for the ERTC are wages for Social Security tax purposes determined without regard to the contribution and benefit base.
Add health care costs that are allocable to that same period, regardless of when they were actually paid. This includes the employer portion of medical insurance premiums as well as employer contributions to an HRA or health FSA. It also includes the portion of the cost paid by the employee with pre-tax salary reduction contributions.
Subtract any portion of the resulting total that is already being used in the calculation of another credit or relief program. Examples include, but are not limited to, use of PPP funding, the Work Opportunity Tax Credit, or paid sick and family leave under the Families First Coronavirus Response Act.
The remainder, by employee, is the employee’s qualified wages eligible for credit by quarter.

Calculate Credit and Request Refund or Abatement
Multiply each employee’s qualified wages, by quarter, by 50%. The result is the ERTC applicable to the employee for that quarter until the total year-to-date cumulative amount for the employee reaches $5,000. At that point, no additional credit can be claimed for the individual.

The maximum credit of $5,000 per employee may be realized in just one quarter for some employees, while other employees may not have sufficient qualified wages in the entire qualified time period to reach $5,000. Determine which quarters in 2020 are impacted by the credit for your organization. Then complete IRS Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for those quarters to claim your refund or abatement.

2021 ERTC

The ERTC is available for qualifying organizations until December 31, 2021 and should be claimed on the quarterly 941 Forms for 2021. These forms are due in April, July, October, and January 2022 so there is still time to determine whether or not you are eligible to include the credit on your return. Once you are confident that your organization is eligible, you may also choose to reduce your employment tax deposits for anticipated credits or submit IRS Form 7200 to request advance payment of employer credits. For the 2021 ERTC, only employers that averaged 500 or fewer full-time employees during 2019 are eligible to request an advance payment of the credit.

Determine Qualified Time Period
There are three methods for determining your organization’s qualified time period that result in two possible time periods for the calculation of the 2021 ERTC. If more than one method applies, you should select the one that covers the greater number of days. If none apply, your organization is not eligible for ERTC for 2021.

If applicable, your organization’s qualified time period matches the dates during which operations in 2021 were at least partially suspended because of government orders limiting commerce, travel or group meetings due to COVID-19. The government issuing the order(s) that suspended your operations may be local, state or federal, but it must be a government order and not self-imposed. The start and end dates of your qualified time period using this method of calculation will likely not coincide with the start or end dates of any given quarter.

If applicable, your organization’s gross receipts for one or all of the quarters in 2021 must significantly decline as compared to the same quarters in 2019. To determine eligibility under this method of qualification, first determine total gross receipts for the quarters being considered for 2019 and 2021. Divide the 2021 quarter total by the respective 2019 quarter total. If the result is less than .8 for the quarter, that full quarter is a qualified time period due to a significant decline in gross receipts.

If applicable, your organization’s gross receipts for the quarters immediately preceding the quarters being considered in of 2021 must reflect a significant decline as compared to the same quarters in 2019. A qualified time period of 1/1/2021 – 3/31/2021 requires that gross receipts for the fourth quarter of 2020 significantly declined as compared to the same quarter in 2019. Divide the quarter ended 12/31/2020 by the same quarter in 2019. If the result is less than .8, the first quarter of 2021 is a qualified time period due to a significant decline in gross receipts.

Likewise, a qualified time period of 4/1/2021 – 6/30/2021 requires that gross receipts for the first quarter of 2021 significantly declined as compared to the same quarter in 2019. Divide the quarter ended 3/31/2021 by the same quarter in 2019. If the result is less than .8, the second quarter of 2021 is a qualified time period due to a significant decline in gross receipts. The same methodology then applies to quarters 3 and 4 of 2021.

If this method is used to determine eligibility for a time period, you must elect to do so. Although the method for election has not been clarified yet by the IRS, there is an assumption that Form 941 will be updated to reflect this requirement.

Calculate Qualified Wages by Employee
The following process applies only to nonprofits that averaged 500 or fewer full-time employees in 2019. If your organization averaged more than 500 full-time employees in 2019, be aware that your calculation of qualified wages will be different.

Qualified Time Period in 2021 Complete individually for each employee.
Q1 Q2 Q3 Q4  
Calculate wages paid by employee for all employees paid during qualified time periods in each quarter of 2021. Wages eligible for the ERTC are wages for Social Security tax purposes determined without regard to the contribution and benefit base.
Add health care costs that are allocable to that same period, regardless of when they were actually paid. This includes the employer portion of medical insurance premiums as well as employer contributions to an HRA or health FSA. It also includes the portion of the cost paid by the employee with pre-tax salary reduction contributions.
Subtract any portion of the resulting total that is already being used in the calculation of another credit or relief program. Examples include, but are not limited to, use of PPP funding, the Work Opportunity Tax Credit, or paid sick and family leave under the Families First Coronavirus Response Act.
The remainder, by employee, is the employee’s qualified wages eligible for credit by quarter.

Calculate and Report Credit
Multiply each employee’s qualified wages, by quarter, by 70%. The result is the ERTC applicable to the employee for that quarter. The credit is capped at $7,000 per quarter per employee and must be reported on Form 941 for the applicable quarter to receive the respective offset to employment taxes due.

Dean Dorton’s nonprofit team has been closely monitoring the changing relief opportunities available to nonprofit organizations in this time of crisis. We are here to provide consultation, collaboration, or confirmation as needed in your journey back to sustainability.

Click the button below to learn more about Kaydee Ruppert, the newest nonprofit expert to join the Dean Dorton team:

Meet Kaydee Ruppert

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page:

COVID-19 Resources

Do you have questions about House Bill 278? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Article Dean Dorton

On Friday, March 12, 2021, the Kentucky General Assembly passed House Bill 278 (HB 278), providing deductibility for Kentucky tax purposes of expenses paid with Paycheck Protection Program (PPP) loans. The same bill provides for the exclusion from taxable income and deductibility of expenses paid with Economic Injury Disaster Loan advances.

The CARES Act, passed in March 2020, launched PPP loans and Economic Injury Disaster Loan (EIDL) advances or grants. The Act provided that the cancellation of indebtedness income from a forgiven loan would not be taxable income. The CARES Act was silent on the deductibility of expenses paid with loan proceeds and made no provision for EIDL advances.

The Consolidated Appropriations Act, 2021 (Appropriations Act) made expenses paid with PPP loan funds deductible for federal income taxes and provided that EIDL advances would be treated in the same manner as PPP loans. With the Appropriations Act, Congress reversed the Internal Revenue Service’s decision that expenses paid with PPP loan proceeds would not be deductible. A collective sigh of relief could be heard across the country. Then, business owners and their advisors realized that deductibility of expenses at the state level would depend on each state’s laws.

The Kentucky Department of Revenue announced that Kentucky law did not permit the deductibility of expenses associated with income not subject to tax. Thus, Kentucky taxpayers were back at square one for at least a portion of their 2020 tax liability. With the passage of HB 278, expenses paid with PPP loan proceeds are deductible, and EIDL advances are treated the same as for federal income tax; that is, the amount of the advance is not subject to tax and amounts paid with the proceeds of the advance are tax-deductible. The General Assembly’s action is welcome, needed relief for most of Kentucky’s small businesses. Governor Beshear has stated that he will sign the bill when it arrives on his desk.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page:

COVID-19 Resources

Do you have questions about House Bill 278? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Article Dean Dorton

The Consolidated Appropriations Act, 2021 established the Shuttered Venue Operator Grant (SVOG) program. The Small Business Administration announced it expects to begin accepting applications in early April. The American Rescue Plan (ARP) amends a key element of the SVOG program and provides some relief for venue operators that have been waiting for funding.

Previously, an eligible entity could not receive both an SVOG and a Paycheck Protection Program (PPP) loan. With the looming March 31, 2021 deadline for PPP applications and the delays in getting the SVOG program up and running, many entities were left deciding whether they should apply for a PPP loan before the deadline, making them ineligible for an SVOG when it becomes available.

With the ARP, eligible entities can now apply for and receive both a PPP loan and an SVOG—with a caveat. Any PPP loan received will be deducted from an SVOG received by the same entity. Consider the example of an eligible entity that receives a First Draw PPP loan for $30,000 on March 23, 2021. When the SVOG program is up and running, the same eligible entity applies for an SVOG and calculates its potential grant amount to be $100,000. Rather than receiving the full $100,000 grant, the entity will now only receive $70,000.

Click the button below for further details on eligibility, grant amounts, and general terms of the SVOG program:

SVOG Program Information

For more information on COVID-19 relief efforts, visit our coronavirus relief resource page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Related Articles

Article Dean Dorton

The restaurant industry was targeted within the American Rescue Plan (ARP) by establishing the Restaurant Revitalization Grant (RRG) program. The program has $28.6 billion for grants to eligible entities, including $5 billion earmarked for eligible entities with 2019 gross receipts of $500,000 or less. The SBA is expected to issue guidance and open the program soon.

Restaurant Revitalization Grant Eligibility

Eligible entities are defined broadly as “a place of business in which the public or patrons assemble for the primary purpose of being served food or drink.” The ARP includes a list of specific entities, including:

  • Food stands and trucks
  • Caterers
  • Saloons, inns, or taverns
  • Bars and lounges
  • Brewpubs
  • Tasting rooms and taprooms
  • Other licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products

The following are ineligible entities:

  • State or local government-operated businesses
  • An entity that, as of March 13, 2020, owns or operates (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names
  • An entity that has a pending application for or received a Shuttered Venue Operator Grant
  • Publicly-traded companies

During the initial 21-day grant awards period, priority will be given to eligible entities that are small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged individuals.

Restaurant Revitalization Grant Amounts

Grants distributed to eligible entities are expected to be equal to the pandemic-related revenue loss calculated as the difference between 2019 and 2020 gross receipts for each location. Maximum grant amounts are capped at $10 million for an affiliated group and $5 million per physical location and will be reduced for any first or second draw PPP loan received by the entity. An affiliated business is defined as a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business, provided that the affiliation existed as of March 13, 2020.

Restaurant Revitalization Grant Uses

Eligible entities are required to spend the grant money on certain eligible expenses, such as payroll costs, maintenance expenses, supplies (including protective equipment and cleaning materials), operational expenses, utilities, etc. Entities with grant monies that go unused or used for unallowable expenses must return the funds to the U.S. Department of Treasury.

It is anticipated that the SBA will create reporting requirements to ensure grant monies were spent according to program terms and conditions.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Related Articles

Article Dean Dorton

With less than three weeks left to apply for a Paycheck Protection Program (PPP) loan, the American Rescue Plan (Rescue Plan) expands eligibility for first and second draw loans. The expansion includes internet publishing organizations assigned an NAICS code of 519130 and any 501(c) organization except for 501(c)(4) and 501(c)(19) entities, which remain ineligible. Newly eligible nonprofit organizations include labor unions, agricultural organizations, and community locations of larger nonprofits. An applicant must meet the following requirements before applying for a loan:

  • the organization does not receive more than 15% of receipts from lobbying activities;
  • lobbying activities do not compose more than 15% of its activities;
  • the cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year that ended before February 15, 2020; and
  • the organization does not employ more than 300 employees at a single location.

Despite the expectation that the current deadline to apply (March 31, 2021) will be extended, newly eligible organizations interested in applying for a loan should begin working with their lender as soon as possible.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Related Articles

Article Dean Dorton

The latest COVID-19 relief package passed by Congress has provided additional funding for Higher Education Relief. The package, titled the Consolidated Appropriations Act of 2021 (the “Act”), also included a new paycheck protection program and many other relief packages and tax changes. This article discusses the key components of the new higher education relief funding.

Colleges and Universities will receive an additional $23B to help relieve some of the impacts of the pandemic. The Act creates a new and complex formula for allocating these funds than what was used in the CARES Act, and it was difficult to immediately estimate how much each institution will get.

As with the CARES Act, institutions must distribute at least 50% of the funds received directly to students in the form of emergency grants. The remaining funds can be used for the following purposes:

  • Defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll);
  • Carry out student support activities authorized by the HEA that address needs related to coronavirus; or
  • Provide financial aid grants to students (including students exclusively enrolled in distance education), which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care. In making financial aid grants to students, an institution of higher education shall prioritize grants to students with exceptional need, such as students who receive Pell Grants.

No funds received by an institution of higher education under from the Higher Education Emergency Relief Funds shall be used to fund contractors for the provision of pre-enrollment recruitment activities; marketing or recruitment; endowments; capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship; senior administrator or executive salaries, benefits, bonuses, contracts, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; or any other cash or other benefit for a senior administrator or executive.

An institution that was required to remit payment to the Internal Revenue Service for the excise tax based on investment income of private colleges and universities under section 4968 of the Internal Revenue Code of 1986 for tax year 2019 shall have its allocation under this section reduced by 50 percent and may only use funds to provide financial aid grants to students or for sanitation, personal protective equipment, or other expenses associated with the general health and safety of the campus environment related to the qualifying emergency.

The Act also includes major changes to student financial aid including a simplification of FASFA form. There are also changes in how eligibility for Pell Grants is determined that should make it easier for lower-income students to receive the maximum amount of federal student aid.

As with the CARES Act, there will be mandatory reporting and audit requirements.

Do you have questions about the upcoming bill? Contact your Dean Dorton advisor, or contact us at:

insights@deandorton.com