IRS Issues ERC Guidance

(from PKF O’Connor Davies and NBOA) Earlier this month, the IRS issued guidance on the Employee Retention Credit (ERC). Here are the highlights of this guidance for independent schools:

• The proceeds from PPP forgiveness can be excluded from gross receipts when determining whether a business has a significant decline in gross receipts.
• ERC credits must be reflected on the return for the year in which the wages were paid.
• A school will qualify for a quarter if there is a significant decline in gross receipts in either that quarter or the immediately preceding one.
• If the school qualifies for ERC, there is no restriction on applying the credit to part-time employees.
• There will most likely not be a 4^th quarter ERC.

In addition to guidance from the IRS, the AICPA non-profit members have expressed that accounting for the ERC should be treated as grant revenue and not a reduction in wages.

For more information on the ERC update, see this summary from PKF O’Connor Davies and information from the IRS: IRS Notice 2021-49 and IRS Revenue Procedure 2021-33

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