What is the Employee Retention Credit?

IMPORTANT UPDATE: On September 14, 2023 the IRS announced an immediate moratorium on processing of new claims, and a more aggressive review of existing claims, due to high levels of fraud in the ERC program.  

The IRS has issued an updated warning, adding widely circulating promoter claims involving Employee Retention Credits as a new entry in the annual Dirty Dozen list of tax scams. Congregations should exercise caution if engaging with unknown third-party vendors selling ERC application services.

The Employee Retention Tax Credit (ERC) is for businesses that were financially impacted by COVID-19. Churches are eligible for the credit. In April of 2020 we published this Legislative Update with a broad overview of the ERC (see page 5 of that update). Although the memo is two years old the overview is still accurate. Application for the ERC is made by submitting a 941-X for each quarter in which the congregation is eligible. Eligibility can be demonstrated thru reduced income or by the business being subject to reduced occupancy restrictions in the measured quarter. A tax or accounting professional can help determine eligibility.

The ERC is not terribly complicated, as least as far as government programs go, but is challenging enough that we strongly recommend getting the help of a trusted professional. The Office of Church Staff Finances is unable to assist individual congregations with this application. Most payroll companies have a process to assist their clients with the ERC, and many tax or accounting professionals may also provide assistance.