As the end of July draws near, the deadline for filing your church’s 6/30/2020 Form 941 is upon us. Due to Covid-19 and the corresponding legislative relief, the second quarter Form 941 is very different from its predecessor. The new version includes new input fields for…
- Credits for qualified Sick and Family Leave Wages-both refundable and nonrefundable
- Employee Retention Credits-both refundable and nonrefundable
- Deferral of employer’s share of SS tax
- Advances received from filing Form 7200
While this may seem overwhelming, for churches who received a Payroll Protection Program Loan (PPPL), it is likely that none of the items above will affect your 941. Recipients of PPPLs are not eligible for the Employee Retention Credit and are also unlikely to qualify for the Sick and Family Leave Wages Credit.
The CARES Act passed earlier this year included a payroll tax credit for certain qualifying employers. To qualify for the credit, an employer must experience either:
- the full or partial suspension of the operation of their trade or business (including tax-exempt organizations) during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- a significant decline in gross receipts (gross receipts are less than 50% of its gross receipts for the same calendar quarter in 2019).
So, for churches that did not receive a PPPL, we believe many of them will qualify for the Employer Retention Credit as long as they continued to pay their employees. The first step is to ensure that you meet the qualifying criteria. Many states imposed limits on large gatherings, which probably resulted in the suspension (or partial suspension) of church services. While we believe that many churches qualify for this credit, we also believe there is a chance that an IRS auditor could assert that the states’ orders did not suspend (or partially suspend) the operation of churches. However, until this topic has been litigated in the courts, there is no way to know for sure how the courts will rule. If you prefer not to take the credit at this time because of this uncertainty, you could file an amended Form 941 in the future to claim the credit if additional guidance is issued by the IRS or if the issue is settled in the tax courts.
FlockBase provides the basic data to complete your Form 941, but it does not track any of these new credits, advances and deferrals. The IRS (and others) provides worksheets to help you with those calculations. As always, we recommend you use the fillable .pdf from the IRS website. For your convenience, here is a link to that form: https://www.irs.gov/pub/irs-pdf/f941.pdf
Hopefully you will find this information helpful as you prepare your 6/30/2020 Form 941.
We recommend you contact your church’s CPA with any questions you may have.
Feel free to forward this information to any churches or ministers to whom you believe this information will be beneficial.
Jerry Walker is a CPA with more than 28 years of tax and accounting experience. Throughout his career he has provided tax and accounting services to scores of ministers and churches. He is also a founding partner in FlockBase Software, “The Affordable Church Software Solution.”
Any accounting, business or tax advice contained in this communication, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.