The IRS updated a list of “frequently asked questions” (FAQs) concerning the employee retention credit (ERC) under the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) (Pub. L. No. 116-136).
The ERC is a refundable payroll credit of 50% of qualified wages paid by eligible employers whose business has been affected by COVID-19. Qualified wages are limited to $10,000 of compensation, including health benefits, paid to each employee. Thus, the maximum credit is $5,000 (50% x $10,000) per employee.
FAQ 46 concerns the definition of gross receipts for a tax-exempt employer.
Text of updated FAQ
46. What are “gross receipts” for a tax-exempt employer? (updated June 19, 2020)
Solely for purposes of determining eligibility for the Employee Retention Credit, gross receipts for a tax-exempt employer include gross receipts from all operations, not only from activities that constitute unrelated trades or businesses. For example, gross receipts for this purpose include amounts received by the organization from total sales (net of returns and allowances) and all amounts received for services, whether or not those sales or services are substantially related to the organization’s exercise or performance of the exempt purpose or function constituting the basis for its exemption. Gross receipts also include the organization’s investment income, including from dividends, rents, and royalties, as well as the gross amount received as contributions, gifts, grants, and similar amounts, and the gross amount received as dues or assessments from members or affiliated organizations.
To determine whether there has been a significant decline in gross receipts, a tax-exempt employer computes its gross receipts received from all of its operations during the calendar quarter and compares those gross receipts to the same gross receipts received for the same calendar quarter in 2019.
Read the FAQs as posted on a dedicated IRS webpage.
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