Did your Washington state church, mosque, synagogue or temple suspend services due to Governor Inslee’s “Stay Home Stay Healthy” proclamation?
I have some good news for you.
Your faith community almost surely qualifies for employee retention credits if it paid W-2 wages subject to Social Security and Medicare taxes. Big ones. And that’s even if you’re a small group.
Why Houses of Worship All Qualify
Employers qualify for employee retention credits in a variety of ways. But one way? When a government order either fully or partially suspends operations.
So what that means? Well, you qualify. Probably.
The March 23, 2020 proclamation from the Washington State Governor, which prohibited faith communities from gathering, counts as a full suspension from March 23, 2020 through January 11, 2021.
And then the January 11, 2021 proclamation, which amended the original closure order with those three “phases” based on infections? That counts as a partial suspension from January 11, 2021 through June 30, 2021.
Thus, nearly every Washington state house of worship qualifies. Especially those located in King, Snohomish, and Pierce counties.
An Exception to the Rule
The one exception to the “everybody qualifies” rule? Faith communities with more than 100 employees in 2020 and more than 500 employees in 2021 including those where the employer is not a single house of worship but a larger ecclesiastical entity.
For example, the Roman Catholic Archdiocese of Seattle is the Washington state employer for that community of churches. Not the individual churches or organizations.
These large employers face a different set of rules not discussed here.
But for nearly everybody else? You almost surely qualify.
Employee Retention Credit Refunds Probably $50,000 to $200,000
The employee retention credit formula calculates surprising large refunds based on W-2 wages subject to Social Security and Medicare wages.
Note: Salaries paid to ministers may not be subject to Social Security and Medicare taxes.
Most employers get up to 50 percent of the first $10,000 paid to an employee in 2020 while fully or partially suspended. Usually that means $5,000 for each employee in 2020.
Most employers also get up to 70 percent of the first $10,000 paid to an employee in a quarter of 2021 while fully or partially suspended. Usually that means $14,000 for each full-time employee paid in 2021. And then 70 percent of the wages paid to part-time employees during the first half of 2021.
These amounts add up fast. Commonly, we see $50,000, $100,000 or even $200,000 in total employee retention credit refunds.
Note: Often ordained clergy don’t get paid W-2 wages. Rather they receive self-employment earnings and a housing allowance. The employee retention credit however applies to W-2 wages. Not these other forms of income.
Paycheck Protection Program Loans Don’t Matter
A clarification: Some people think if an organization received a paycheck protection program loan, it doesn’t qualify for employee retention credits. That understanding is incorrect. Or more accurately out of date.
The “you can’t double-dip” rule applied in the beginning. But Congress later changed the law.
Claiming the Employee Retention Credit
If you haven’t claimed employee retention credits you’re entitled to? Not a big problem.
You need to amend the quarterly 941 payroll tax returns you file with the Internal Revenue Service.
In a nutshell, you simply add the employee retention credits you’re entitled to to the return. That creates a refund. You then file the return. And a few weeks or months later, the IRS will send you the check.
The one thing you do need to do is explain why you’re entitled to the refund. You’re getting a lot of money back, probably. So you need a detailed statement. Like the one that appears in the next section.
You have our permission to copy and paste the statement that appears below into your amended 941 payroll tax return. Copy and paste from the [Your Faith Community Name Goes Here] tag to the [End of 941 Statement] tag.
Statement of Explanation for House of Worship Employee Retention Credit
[Your Faith Community Name Goes Here] qualifies for employee retention credits for the last three quarters of 2020 and the first two quarters of 2021 based on government orders from Washington state governor Jay Inslee that either fully or partially suspended operations from March 23, 2020 through June 30, 2021.
PERIOD OF FULL SUSPENSION
From March 23, 2020 through January 11, 2021, the faith community qualifies for employee retention credits due to the “full suspension of activities due to a government order” rules of section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the related guidance in IRS Notice 2021-20, IRS Notice 2021-23 and IRS Notice 2021-49.
The government order that starts the period of full suspension is the “Stay Home, Stay Healthy” Proclamation 20-25 (March 23, 2020), and subsequent extensions and amendments were issued under RCW 43.06.220(1).
Quoting from page 4 of that proclamation,
“All people in Washington State shall immediately cease participating in all public and private gatherings and multi-person activities for social, spiritual and recreational purposes, regardless of the number of people involved, except as specifically identified herein. Such activity includes, but is not limited to, community, civic, public, leisure, faith-based, or sporting events; parades; concerts; festivals; conventions; fundraisers; and similar activities. This prohibition also applies to planned wedding and funeral events. This prohibition shall remain in effect until midnight on April 6, 2020, unless extended beyond that date.”
Note: Links to all of Governor Inslee’s COVID-19 proclamations which repeatedly extended the shutdown the operations of faith communities, appear here:
The government order that ends the period of full suspension is the “PROCLAMATION BY THE GOVERNOR AMENDING PROCLAMATIONS 20-05 and 20-25, et seq. 20-25.12 “HEALTHY WASHINGTON – ROADMAP TO RECOVERY” issued on January 11, 2021.
PERIOD OF PARTIAL SUSPENSION
From January 11, 2021 through June 30, 2021, the faith community qualifies for employee retention credits due to the “partial suspension of activities due to a government order” rules of section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020), as amended by section 206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (December 27, 2020) and again the related guidance in IRS Notice 2021-20, IRS Notice 2021-23 and IRS Notice 2021-49.
The government order that starts the period of partial suspension is the previously referenced “PROCLAMATION BY THE GOVERNOR AMENDING PROCLAMATIONS 20-05 and 20-25, et seq. 20-25.12 “Healthy Washington – Roadmap to Recovery” issued on January 11, 2021. That proclamation specifically expands the state’s COVID-19 orders to include the “Healthy Washington – Roadmap to Recovery” document and plan. That document and plan creates three phases of operation for faith communities: Phase 1, phase 2 and phase 3. During phase 1 and phase 2, which run from January 11, 2021 through May 18, 2021, faith communities can operate their indoor worship services, their principal operation, but only at 25 percent or less capacity. Phase 1 and 2 therefore represent a 75 percent reduction in capacity based on hours of service and therefore a more than a nominal reduction in hours of service. During phase 3, which runs from May 18, 2021 through June 30, 2021, faith communities can operate indoor worship services but only at 50 percent or less capacity. Phase 3 therefore represents a 50 percent reduction capacity and therefore again a more than a nominal reduction in hours of service.
The government order that ends the period of partial suspension is PROCLAMATION BY THE GOVERNOR AMENDING PROCLAMATIONS 20-05 and 20-25, et seq. 20-25.13 “HEALTHY WASHINGTON – ROADMAP TO RECOVERY” issued on May 21, 2021.
Quoting from that order,
“WHEREAS, the data supported moving all counties to Phase 3 on May 18, 2021, and, further, unless the data changes and supports a different path, setting a goal of fully reopening most sectors in the state by June 30, 2021…”
Proclamation 20-25.12 is available here: https://governor.wa.gov/sites/default/files/proclamations/proc_20-25.13.pdf
The Healthy Washington—Roadmap to Recovery document is available here: https://governor.wa.gov/sites/default/files/2023-01/HealthyWashington.pdf
[END OF 941 STATEMENT]
Does Your Church, Mosque, Temple or Synagogue Need Help?
If you’re a Washington state employer and you can’t do the amended returns yourself? Or you can’t get a CPA in your congregation to do the work? We’re happy to help your organization amend the returns. We won’t do the work for free. But the price will be very affordable. Turnaround time is usually a few days. We’ll let you pay when you get your refunds.
You can contact us here: Nelson CPA.
Other Resources
Here’s a longer discussion of how houses of worship handle employee retention credits: Houses of Worship Miss Boat on Employee Retention Credits
Just saying that every house of worship in Washington state qualifies sounds pretty, er, aggressive. Therefore, just so you know we aren’t cavalier about employee retention credits? Here’s a discussion of how too many employers are getting scammed or conned by employee retention credit consultants: If You Got Conned in an ERC Scam.
Also just in case you’re a decision maker in a for-profit business that possibly could qualify? Check out this article which explains the general rules: 16 Ways to Qualify for Employee Retention Credits.