Compliance Update on the Employee Retention Credit

Cornerstone League’s Information Central has received recent inquiries regarding the Employee Retention Credit (ERC) and whether credit unions are able to obtain this credit. We thought it would be helpful to clarify some recent changes regarding this issue.

Background

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing a refundable employment tax credit for eligible employers paying qualified wages and healthcare expenses. This tax credit was available for any eligible employer whose business operations were fully or partially suspended due to orders from a governmental authority or an employer with a significant decline in gross receipts. The credit was originally planned to expire at the end of 2020.

At that time, the restrictive wording of the CARES Act constrained federal credit unions from applying for the credit because the law excluded “federal instrumentalities.” As most of you know, federal credit unions are tax exempt under IRS Code 501(c)(1) as an instrumentality of the federal government. State-chartered credit unions are not considered federal instrumentalities and therefore could be eligible for the ERC if they otherwise meet the criteria. 

Update

The good news is that Congress subsequently extended and amended the employee retention credit, first under the Consolidated Appropriations Act (CAA) and then the American Rescue Plan Act (ARPA). 

The ARPA amended the problematic “federal instrumentality” language included in the CARES Act, thanks to the hard work of your credit union trade associations. The latest version of the law addressing the ERC permits federal credit unions to qualify for the credit if they otherwise meet the criteria.

Criteria for the ERC

To be eligible for the credit, employers must meet one of the following criteria:

1. Fully or partially suspend operation during any calendar quarter in 2020 or 2021 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; OR
2. Experience a significant decline in gross receipts during the calendar quarter (down at least 20% as opposed to the same quarter in 2019).

As “essential businesses” that remained open during the shutdown of many other businesses, most traditional credit unions likely won’t qualify for the first criteria but might qualify under the decline in gross receipts criteria. That said, some credit unions have unique situations that may qualify them for the shutdown criteria. For example, a credit union housed in a government building that was shut down due to state or local orders. As a result, both state and federal credit unions may want to contact their payroll provider and/or tax professional to determine if they qualify.

What Does the ERC Entail?

Originally, the covered period for the ERC under the CARES Act was March 13, 2020, to Dec. 31, 2020, with a maximum ERC of up to $5,000 per employee. Subsequent legislative acts both extended and expanded the ERC:

• The CAA, effective Dec. 27, 2020, extended the ERC to include wages paid before July 1, 2021, and expanded the maximum ERC to $7,000 per employee per quarter.

• The ARPA, effective April 1, 2021, extended the coverage period to include wages paid between July 1, 2021, and Dec. 31, 2021.

How Do I Apply for the ERC?

Credit unions can apply for the ERC through IRS form 941. Form 941x can be used to correct errors on a form 941 previously submitted (if you neglected to claim this credit earlier but think you may qualify).

Please note also that OneDigital, Cornerstone’s 5-star business partner, has set up its own partnership to provide this service for credit unions. If interested, please email Ryan Schweizer, client executive, or call him at 972-834-6412.

Questions?

If you have questions, please email Suzanne Yashewski, regulatory compliance counsel at Cornerstone League.