The Employee Retention Credit has been a lifeline for thousands of businesses. But confusion and misconceptions about eligibility requirements have left many non-profit organizations hesitant to explore this benefit because they assume they don’t qualify.

Increase in Charitable Contributions Leads to Eligibility Misconceptions

Charitable contributions are the primary revenue source for non-profit organizations. While experts anticipated a decline in philanthropic aid throughout the pandemic, many charitable organizations reported revenue growth. Americans increased their charitable giving in 2020 and 2021 despite challenging economic times. That uptick in donations is one of the main reasons non-profits have shied away from applying for the ERC, believing their inability to demonstrate a decline in revenue makes them ineligible. 

The Two Eligibility Tests

ERC eligibility is determined on two tests: the “significant decline in gross receipts” test and the “full or partial suspension of operations” test. While the gross receipts test relies on accounting-based calculations, suspension of operations emphasizes the operational impact of COVID-19 on an organization and the reality that revenue does not always tell the whole story.

In fact, the suspension of operations test is easily met by many non-profits. These organizations were significantly impacted by the pandemic. They may not have experienced immediate revenue loss. But they did see an increase in demand at a time when their inability to fundraise forced reductions to their budgets.

Benefits of Claiming the Employee Retention Credit

Non-profits are generally restricted on how they can spend donations and grants. But access to unrestricted funds through the ERC can be significantly beneficial. These funds can be used to support any program or objective within the organization, alleviating financial burdens and facilitating the creation of new services.

Navigating the complexities of the Employee Retention Credit requires in-depth knowledge and expertise. Let the Miami CFO team help you access much-needed funds to continue your essential work.

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