The following blog was contributed by Frank Clement, director of strategic partnerships at America’s Christian Credit Union.
Virtually every school, parish and diocese in America was financially impacted by the COVID-19 pandemic. Consider the now-familiar experience of schools like Trinity Academy1: students were scheduled to return from spring break on March 23, 2020, but never stepped foot on campus again for the remainder of the school year. Fundraisers were canceled, after-school programs scrapped and athletics and clubs put on indefinite hold. Already overworked staff put in more hours than ever only to feel as though they were falling behind at every turn.
In response, the U.S. Government developed the CARES Act Employee Retention Credit (ERC) to help offset the financial hardships that many organizations experienced. The ERC is a refundable tax credit of up to $26,000 per employee.
Although no amount of money can make up for the stress experienced by school staff crushed by the task of educating students during a pandemic, the tax credit can help recoup school operating costs and replace lost revenue. In the case of Trinity Academy, the school of 40 employees ended up receiving IRS checks for a cumulative $500,000 in tax credits and is now thriving in the wake of COVID. With operations restored and well-funded, students that fell woefully behind academically are quickly catching up to grade-level performance again.
The Aggregation Question
Many schools, parishes, and dioceses have already taken advantage of the Employee Retention Tax Credit, but some have hesitated to file out of a belief that they don’t qualify. One of the most common concerns voiced by Catholic organizations centers on the question of “Aggregation,” or, simply put: whether a Catholic school employee is considered an employee of the school or the diocese for purposes of ERC calculation.
In an April 2020 memo, the USCCB’s general counsel addressed aggregation with the following guidance:
Section 2301(d) provides that all persons treated as a single employer for purposes of Internal Revenue Code Section 52(a) and (b) will be treated as one employer for purposes of the employee retention credit. Section 52(a) provides that in the case of a controlled group of corporations, the entities will be treated as a single entity based on an aggregated percentage of stock ownership. Section 52(b) provides that “all employees of trades or business (whether or not incorporated) which are under common control shall be treated as employed by a single employer.”
To be clear, aggregation has no impact on whether a Catholic school qualifies for the credit or not. It also doesn’t change the filing party. Whichever entity filed the initial 941 payroll tax form will also submit the 941x amendment form reflecting the credit calculation. The only impact aggregation has is on whether a school must file as a large or small employer.
For instance, if a diocese or school determines that it is an aggregated entity for purposes of the ERC, the school will file its 941x as though it was a large employer, even if the number of school employees is actually small. But if the diocese or school determines that it is not aggregated, the school will calculate its credit based on its average full-time headcount in 2019 (i.e., number of employees averaging over 30 hours/week; see also the employee table nearby for Small and Large employer counts). The credit amount can vary widely between large and small employers, but the important point is that the school is still receiving some kind of refund from the IRS, rather than nothing at all. As you consider how to proceed, it is important that your school coordinate with the relevant governing bodies, such as your parish (for parochial schools), and the diocesan school and legal offices.
|Small Employers||Large Employers|
Other Common Misconceptions
Below are several reasons that you may think your organization doesn’t qualify for the ERC – all of which are misconceptions:
- We already took the Paycheck Protection Program (PPP)
- We are an essential business
- We were not shut down and stayed open the whole time
- Our organization’s year-over-year revenue did not decline by 20%
- We are a non-profit company and don’t pay taxes
Taking the Next Step
America’s Christian Credit Union (ACCU), an NCEA corporate partner, can help you navigate the process of applying for the ERC through the following steps:
- Step 1: Book a call with a tax expert to discuss your organization’s situation and receive a clear definition of government orders.
- Step 2: Work with a consultant to prescreen facts and circumstances toward potential eligibility and lay out the next best steps for your organization.
- Step 3: If credit eligibility is deemed likely, enter into a contract with no up-front costs so consultants can analyze your organization’s payroll and identify ways to maximize your credit.
- Step 4: Receive a customized tax credit package laying out all the areas to maximize your credit while guaranteeing compliance and audit defense. Your CPA or tax accountant will submit your paperwork to the IRS to receive your credit.2
The COVID pandemic was perhaps the greatest test Catholic schools have faced so far in this century and they passed with flying colors. However, the labor and operational adjustments required to continue educating students in the midst of a global health crisis were unprecedented, to say the least. Fortunately, the Employee Retention Tax Credit is one way Catholic schools can obtain a partial recompense for the immense burdens shouldered to safely and effectively disciple students.
To learn more and get started on your school’s credit, book a consultation with a relationship manager at https://AmericasChristianCU.com/ERC.
1School name changed to honor community privacy. Trinity Academy represents a school that ACCU has supported in this process.
2Receiving your ERC is determined by the final analysis and approval of the IRS. A contingency fee will be due when a tax credit package is provided.