Will Your School Bless Others with the Employee Retention Tax Credit?

A Certified Public Accountant’s Perspective on the ERC

Has your school applied for the Employee Retention Credit? It is worth as much as $26,000 per employee.  Most private schools qualify for the Employee Retention Credit (ERC), and the funding received has changed the trajectory of many Christian institutions. There are still countless Christian schools that have not applied for the ERC because they are unaware of the program or think that they do not qualify.  Others have not considered that while their own school may not need the funds due to an increase in revenue during the pandemic, they could use the money to help others.  

Almost every private school qualifies for the ERC because most schools were required to end in-person learning and use a form of remote learning in March of 2020.  This is what the IRS refers to as a partial shutdown.  Some schools continued the partial shutdown in the fall of 2020 because government orders (state or local) kept students out of buildings and required more remote learning.  Other schools continued with a partial shutdown because government orders limited the number of people in a school building or students in a classroom. Still others had to switch to a type of hybrid learning because of government orders.  These are just a few examples of partial shutdowns that would qualify a school to receive the ERC for additional quarters.  Schools should be aware that masking, new air systems, and plastic dividers do not qualify a school for an ERC. 

There are more situations that ensure eligibility.  Schools are eligible for the ERC if they experienced significant declines in quarterly gross revenue due to COVID-19.  However, a decline in revenue is not required in order to qualify for the ERC.  Additionally, if a school began operations after February 2020, the school also may qualify for the ERC. 

Furthermore, in November of 2021, rulings changed; schools and small businesses may now receive the ERC even if they already received the PPP loan.  

The Process
Unlike the PPP loan application, which many schools and small businesses completed on their own, the ERC is a very complicated process.  The IRS has changed aspects of the ERC numerous times, and parts of the calculation are complex.  While a school could try to complete this credit on their own, it is not recommended.  Understanding the qualification process and the calculation itself is difficult, and many publications recommend consulting a professional to file.  There will be a fee when using a professional, but the benefit is that the tax professional will guarantee that the credit is filed properly and that the school will receive the maximum amount of funds legally possible.  This is vital to avoid penalties should you ever be audited. 

To file the ERC, a school must amend their 2020 and 2021 quarterly federal payroll tax forms (941). Once these forms are filed, returns are placed in the IRS queue for review.  It can take four to six months for the IRS to complete the review process, and for that reason we recommend that all schools file as soon as possible.  Once the IRS completes the review, schools will receive one check for each quarter in which they qualified.  The IRS will add interest to the refund given.  These funds are a tax credit and not a loan.  No forgiveness forms need be filed. 

The window to file for the ERC will begin to close in April of 2024, and no filing will be allowed after April of 2025.  However, it is recommended to complete the process as soon as possible to guarantee that funds do not run out. 

Consider how your school may bless others with these funds
Many Christian schools have received hundreds of thousands of dollars from the ERC, and some have received over a million dollars.  Unlike the PPP loan, which needed to be used for payroll to be forgiven, the ERC may be used for any purpose a school chooses.  You are not misunderstanding this.  If your school qualifies for the ERC and files, you may use the funds for any purpose.  The possibilities are endless. 

The federal government put this money aside as a way to encourage businesses to retain employees during the pandemic.  The money will be used.  It will be used by your school or by another business.  One question is how will this money, our own tax dollars, be used?  This is an unprecedented opportunity to receive substantial tax dollars to help fulfill the mission of your school.   

My own children attended Christian school.  It seemed that nearly every other month we would receive a letter telling us that the school did not know how they were going to pay the teachers.  Some teachers would forgo their salary for a period of time so that the school could pay other bills.  This same school recently received their ERC.  They are not worried about paying teachers anymore.  Instead, they are, amongst other things, focusing on improving the quality of education, adding safety features, upgrading ventilation, and providing scholarships to students who may not have otherwise been able to attend private Christian school. 

I have had the privilege of speaking with many principals about how they used or will use their ERC money.  Some have literally broken down in tears when they tell me how they are using their money.  One school will finally be able to put a new roof on their building; another is actually building a facility so that there is room for more students to receive a Christian education in their town. Others will simply be able to keep their doors open after some difficult years and high inflation. 

Perhaps your school is not in need of any funds, but have you considered using your funds to help others in need?  Some schools may put a portion of the money in an endowment to offer scholarships to students for years to come.  Others may donate funds to missions around the country or the world.  One suggested putting a portion of money in a fund to help families who incurred hardship due to the pandemic.  I have recommended that schools consider putting a portion of their funding into a program like Fortify Schools so that annuities will be available when funding is not available and cash flow is lean.  One large school was challenged to use their funds to help urban schools that are just now opening their doors to students in great need. 

A little about myself and a word of caution before filing
I became a certified public accountant over thirty years ago.  I stopped practicing to raise my children. I homeschooled them for a period of time and sent all four of them to private Christian school for some portion of their education.  Now that almost all of my children are adults, I am working in the industry again.  When I was introduced to the ERC program, I could not help but think about all the incredible ways Christian schools could use these funds.  I see young people and families struggling all over, and I wish more of them had the opportunity to receive a high-quality Christ-centered education.  This is one of the reasons I am working to tell schools about this program. 

Having spoken with administrators from all over the country, I am glad to hear that many have taken advantage of this credit; however, I want to caution all schools to be careful about who completes their ERC.  There are marketing firms who may file for dollar amounts in excess of what is legal.  They do this so that they may receive higher fees.  Some of these firms will surely disappear when the program ends and will not support their clients if the IRS has questions.  Already the IRS is cautioning businesses to beware of these firms. 

I am thrilled to work with a reputable, full-service CPA firm, which is helping schools and small businesses all over the country receive the Employee Retention Credit with integrity.  Manning Silverman and Co is a partner of ACSI (Association of Christian Schools International), which means we have been vetted, and the organization recommends us to their schools.  We do not work on a percentage basis but on an hourly basis.  However, because the firm supports private education, we offer a reduced fee, capped at 9% of the credit received, for all private schools.  This is an honest rate, as we have heard that some firms are charging 25-33% of the credit in fees. 

I would be happy to provide your school with an ERC estimate.  We provide estimates free of charge or obligation.  We work diligently with our clients to determine eligibility.  Please contact me at any time via email at cwentz@manningsilverman.com.  I will work hard to help your school so that you may bless others.

Cheryl Wentz is a certified public accountant, practicing in Grayslake, a small northern suburb of Chicago, Illinois.  Cheryl and her husband Scott adore their three daughters, son, son-in-law, daughter-in-law, and Jack.
Email Cheryl at cwentz@manningsilverman.com.