CUs Encouraged to Research Little-Known Tax Credit

Initially part of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, enacted in March of last year, the Employee Retention Tax Credit (ERTC) was created to help small businesses stay afloat during the pandemic by allowing a business to take a fully-refundable tax credit against payroll taxes. This tax credit could apply to several hundred credit unions.

Under the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA), the ERTC was extended to cover all of 2021. Therefore, many credit unions could be entitled for the tax credit for any quarter this year.

On Wednesday, NAFCU posted a reminder to credit unions about this tax credit on its website. NAFCU stated, “Credit unions that are eligible for the tax credit in 2021 may receive a credit for 70% of qualified wages per employee, per quarter, in addition to employee health benefits, up to $7,000 per employee for each calendar quarter. Under Section 9651 of the ARPA, which passed into law earlier this year, previous portions of the employee retention tax credit provisions were amended, specifically the ‘federal instrumentality’ language NAFCU flagged for lawmakers and the Treasury as problematic because it potentially excluded credit unions from obtaining the credit.”

In a guest post about the ERTC on ThinkAdvisor (a sister publication of CU Times), the authors Robert Bloink and William H. Byrnes wrote that the tax credit is somewhat confusing and, for those organizations that are eligible, it mainly comes down to the number of employees and qualified wages. They wrote:

”The definition of “qualified wages” depended upon whether the employer was classified as a large or small employer. Large employers were originally defined as those with more than 100 employees, but for 2021, the large employer rules apply only to those with more than 500 employees under the Consolidated Appropriations Act of 2021. 

If the employer was classified as a small employer, the amount of credit-eligible qualified wages includes wages paid during a quarter when COVID-19 affected the business. That included situations where the employees continue to provide services for payment in the relevant period and when employees are paid, but not working. Businesses with 500 or fewer employees also have the option of advancing the credit at any point in the quarter, and the credit is estimated based on 70% of the average quarterly wages the employer paid in 2019. 

For large employers, the wages counted toward the credit include only those paid while the employee was not working for the employer because of a government order or decline in gross receipts.”

According to reports by numerous sources, depending on the size of the credit union and what pandemic-related impacts were felt, between 300 and 600 credit unions could qualify for the tax credit.

Another set of eligibilities required for the tax credit include:

• Operations that were shut down or partially suspended during the pandemic.
• Gross receipts that declined more than 80% compared to the same quarter of 2019.

NAFCU posted, “Of note, the IRS has released guidance on qualified wages paid after Dec. 31, 2020 and before July 1, 2021 as well as additional guidance for wages paid after June 30, 2021 and before Jan. 1, 2022. Eligible wages are determined based on the employers’ average number of full-time equivalent employees (FTEs). Credit unions with fewer than 500 FTEs may be able to include wages paid to both working and non-working employees.

To claim the credit, a credit union must report total qualified wages and related health insurance costs on its quarterly employment tax return, otherwise known as Form 941.”

NAFCU, the IRS and financial experts agreed that credit unions should discuss these possible tax credit options with their payroll provider or their accountant/tax professional.

On Thursday, Oct. 7, the Naperville, Ill.-based Alloya Corporate Federal Credit Union is hosting a webinar called “Understanding Employee Retention Tax Credits and How You May Qualify.” The webinar is free for attendees.