Charter Schools May Qualify for the Employee Retention Credit

Charter Schools May Qualify for the Employee Retention Credit

The Employee Retention Credit (ERC) was established as a refundable tax credit for employers who faced disruptions during the COVID-19 pandemic. Originally, the ERC was only available to businesses who experienced a significant decrease in revenue during the government-mandated shutdown. However, the ERC has since been modified to benefit nonprofit organizations that suffered from qualifying business disruptions from March 13, 2020, through December 31, 2020, as well as the first quarter, second and third of 2021.

Since the ERC originally was not available to nonprofit organizations, many school-related entities falsely assume they do not qualify for the credit. However, most Charter Schools faced significant operational disruptions due to the government-mandated shutdown and/or social distancing requirements in 2020 and 2021. Therefore, your Charter School may be eligible to claim up to seven figures in ERC refunds.

How Can Charter Schools Qualify for the ERC?

There are two ways that Charter Schools can qualify for the ERC:

  1.  The Charter School experienced a decline in revenue of at least 20% relative to its revenue in 2010.
  2. The Charter School was required to adjust its operations during 2020 and 2021, due to COVID-19 government mandates. The most common examples of qualifying operational disruptions for Charter Schools include:
    •  Transitioning from in-person to virtual learning
    • Reduced hours of operation
    • Restricted usage of classroom facilities
    • Shifted hours of operation to increase sanitation of facilities
    • Limited enrollment due to restricted capacity
    • Increased lunch periods
    • Rotations of teaching staff and students
    • Inability to work with vendors

What is the Maximum Benefit a Charter School Could Receive from the ERC?

The ERC provides the largest cash refund across all pandemic relief benefits available to U.S. businesses. The maximum credit value for 2020 is $5,000 per employee, per year, and the maximum credit value for 2021 is $7,000 per employee, per quarter. For example, if a Charter School qualifies for all quarters and has 20 employees, its combined total of credits could be up to $520,000.

When is the Deadline to Apply for the ERC?

If a Charter School qualifies for the ERC and has not previously submitted an ERC application, there are two filing deadlines to be aware of to apply for the ERC:

Applicable QuartersFiling Deadline
All quarters in 2020April 15, 2024
All quarters in 2021April 15, 202

Employers can amend previously submitted forms by filing and submitting Form 941-X to retroactively claim the ERC.

A Note on ERC Tax Scams

It is important that Charter Schools are wary of third parties advising them to claim the ERC. The Internal Revenue Service (IRS) has reported in the Dirty Dozen list for 2023 that scammers are aggressively promoting refunds in large, exaggerated amounts related to ERC.

If you are unsure whether your Charter School may qualify for the ERC, please contact the Brown Plus Nonprofit and Government Practice professionals, so your eligibility can be evaluated for all qualifying activities to maximize your ERC benefit.

Posted In: Tax | Nonprofit Organizations | Insights

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