The Employee Retention Credit (ERC) is a valuable tax incentive introduced by the United States government to support businesses during and after the COVID-19 pandemic. Initially designed for private enterprises, the ERC has undergone several revisions to extend its benefits to various organizations, including public schools.
In this article, we’ll explore the eligibility criteria for public schools to qualify for the Employee Retention Credit and understand how this tax incentive can aid in sustaining educational institutions during post-COVID times.
1. The Evolution of Employee Retention Credit
The ERC was established as part of the CARES Act in March 2020, aiming to encourage businesses to retain employees despite economic uncertainties arising from the pandemic. It allowed eligible employers to claim a refundable tax credit for qualified wages paid to employees during periods of partial or full business shutdown.
2. Initial Limitations for Public Schools
When the ERC was first introduced, it had limitations that excluded most public schools from qualifying. Public schools funded primarily through government appropriations or tax revenue were deemed ineligible. This limitation stemmed from the belief that such institutions did not face the same financial risks as private businesses.
3. Expansion of ERC to Include Public Schools
Recognizing public schools’ critical role in society and their financial challenges during the pandemic, the Consolidated Appropriations Act (CAA) of 2021 expanded the ERC to include public schools. Under the CAA, public schools became eligible for the Employee Retention Credit, regardless of their funding sources.
4. Eligibility Criteria for Public Schools
To qualify for the ERC, public schools must meet certain criteria:
a. Operational Status: The school must demonstrate that it was fully or partially suspended due to a government order related to COVID-19. This suspension could result from a variety of reasons, including temporary closure or reduced operations due to safety concerns.
b. Decline in Revenue: Alternatively, even if a public school remained open, it could be eligible for the credit if it experienced a significant decline in revenue during the qualifying period. The specific threshold for this decline in revenue varies depending on the eligibility timeframe.
c. Employee Count: The institution’s size also plays a role in determining eligibility. For schools with 500 or fewer full-time employees, all wages qualify for the credit, regardless of whether the employee worked during the suspension or reduced-revenue period. In contrast, larger institutions with more than 500 employees can only claim the credit for wages paid to employees who did not provide services during the eligible periods.
5. Calculating the Employee Retention Credit
The ERC amount is calculated based on the qualified wages paid to eligible employees. For schools with 500 or fewer full-time employees, the credit is equal to 70% of qualified wages, capped at $10,000 per employee per quarter. For larger institutions, the credit is limited to 70% of qualified wages, up to $10,000 per employee annually.
6. Interaction with Other COVID-19 Relief Programs
It’s essential for public schools to be aware of the interaction between the ERC and other COVID-19 relief programs they may have accessed. For example, if a school received funds under the Paycheck Protection Program (PPP), it can still claim the ERC but may not use the same wages used to support PPP loan forgiveness. Additionally, wages subsidized by the ERC cannot be used to claim credits under the Families First Coronavirus Response Act (FFCRA).
Do public schools qualify for the Employee Retention Credit?
Yes, public schools apply for the Employee Retention Credit. Expanding the ERC to include public schools has provided a lifeline to educational institutions facing financial challenges due to the COVID-19 pandemic. By understanding the eligibility criteria and navigating the complexities of claiming the credit, public schools can use this tax incentive to retain their valuable employees and ensure the continuity of quality education. As the landscape of relief programs continues to evolve, schools must stay informed about any updates to maximize the benefits offered by such initiatives.
Bottom Line Concepts Helps Public Schools Claim the ERC
If you want to receive the ERC for wages paid in 2020 and the first three quarters of 2021, you must file Form 941-X, the Employer’s Quarterly Federal Tax Return. It’s important to note that determining eligibility and calculating the amount of tax credit can be quite complicated, and it’s crucial to submit the forms to the IRS with complete accuracy in order to receive the credit you’re entitled to.
Over 25,000 schools and businesses have been assisted by Bottom Line Concepts with enrolling in the ERC program. Feel free to reach out to us today to determine eligibility and learn how to claim this beneficial credit you may be entitled to.
