When the Apostle Paul wrote his first letter to his young protege Timothy, I wonder if he knew his words would continue to guide and inspire followers of Jesus almost 2,000 years later. For example, in 1 Timothy 6:9-10, Paul famously wrote, “But those who want to get rich fall into temptation and a trap, and many foolish and harmful desires which plunge people into ruin and destruction. 10 For the love of money is a root of all sorts of evil …” Being rich is not a sin, and money is not evil. However, when people desire anything, like money, more than God, their actions become foolish and harmful, leading to destruction. And some churches, without realizing it, may have fallen prey to schemers promising riches from the government in the form of ERC (Employee Retention Credit) money. Before panic and anxiety set in, it’s important to know about the ERC, who is eligible, the impact of scammers on businesses (including churches), and what to do if your church incorrectly applied for the ERC.
What Is The Employee Retention Credit
The ERC, also known as the ERTC (Employee Retention Tax Credit), is a legitimate government program that provides a tax credit for organizations (including non-profits like churches) impacted by the COVID-19 pandemic.
Who Is Eligible For The ERC
Over the last few years, there has been a lot of confusion and misinformation about this program. Scammers are leveraging their love of money and trying to take advantage of unsuspecting churches. To combat these ruthless scammers, the IRS provides clear instructions to determine eligibility for this complex program.
- First, did the church have employees and pay wages to them between March 13, 2020, and December 31, 2021?
- Second, did the church experience the required decline in gross receipts during the eligibility periods in 2020 or the first three calendar quarters (Jan. through Sept.) of 2021?
All businesses, including churches, must determine if they meet the required decline in gross receipts (donations) compared to 2019 (pre-pandemic numbers). Per the IRS, for 2020, churches begin qualifying in the quarter when their gross donations are less than 50% of the gross donations for the same quarter in 2019. For 2021, donations must be 80% less than the same quarter in 2019 to qualify.
The Impact of Scammers
Opportunists with dollar signs in their eyes promise that, for a fee, they can provide the maximum ERC payout from the government. Unfortunately, many businesses, including churches, fell for this scam without qualifying for the tax credit. The problem was so big and widespread that in September 2023, the IRS put a moratorium on processing new ERC claims and began to analyze existing claims. So far, the IRS sent 28,000 letters informing organizations they are denying their ERC claim, noting that many of these claims reflect the bad advice from ERC promoters.
Withdrawing an ERC Claim
On August 15, 2024, the IRS reopened the ERC Voluntary Disclosure Program, allowing organizations that want to repay the funds they received in error after filing for an ERC. Per the IRS, if your church filed in error, the voluntary disclosure program has several advantages, like only repaying 85% of the ERC amount received and waiving penalties and interest. Churches in this position must act fast; there are deadlines for the ERC voluntary disclosure program.
Unfortunately, the lure of quick, free government money has tempted too many charlatans, scammers, and schemers into tricking churches into a program they may not qualify for. Thankfully, the IRS has provided clear instructions on eligibility and a way out for those who applied in error.
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