A Guide to Employee Retention Credits for Museums

The COVID-19 pandemic affected every element of the economy, but one sector that was severely affected was the museum sector. Across the country, many museums were forced to close for months on end, operate at reduced capacity, and cancel major exhibits. 

Needless to say, this had a major impact on the gross receipts of many museums, with revenue down significantly for many leading institutions. Together, donor support and government stimulus kept most afloat, ensuring organizations could continue to meet their financial commitments even when certain income streams completely dried up overnight. 

One element of government support that some museums may have overlooked is the Employee Retention Credit (ERC). This program offered tax benefits in both 2020 and 2021. Today, it’s not too late for museums to file an amended return to take advantage of the potential tax benefits available. However, there are deadlines for these programs, so it’s important to begin the filing process if you believe your organization may qualify. 

This overview shares the details that board members, executives, and financial leaders should be aware of when it comes to the employee retention tax credit for museums. Pursuing this opportunity may offer museums significant retroactive tax benefits that give way to additional funds nonprofits can use to support their programs and goals. 

What Are Employee Retention Tax Credits for Museums?

Employee Retention Credits are refundable payroll tax credits that an organization can retroactively claim. The credits, originally passed by Congress in the early days of the pandemic as part of the CARES Act, were designed to support organizations that kept employees on payroll throughout the pandemic. They are refundable credits, meaning the organization will receive a physical check and not a carryforward of credit on the payroll tax filings.

The amount of the credit can be substantial – up to $10,000 per employee for 2020 and $21,000 per employee for 2021. This is an opportunity that many museums and other arts and culture nonprofits may have overlooked at the time. However, with the support of an accounting firm with significant experience advising nonprofits, it’s possible to retroactively claim these credits. 

Does Your Museum Qualify for Employee Retention Credits?

To determine whether a museum qualifies for these tax benefits, there are several requirements that must be met. Generally, a museum may qualify if they continued to pay employees and:

1. Suffered from a full or partial closure due to the COVID-19 pandemic and associated orders from appropriate governing bodies, OR

2. Experienced significant declines in gross receipts from March 13, 2020, to September 30, 2021. Per IRS guidance, these “significant declines” are defined as follows:
   1. In 2020, a decline of 50% or more as compared to the equivalent quarter in 2019
   2. In the first three quarters of 2021, a decline of 20% or more as compared to equivalent quarter in 2019.

It’s important to note that forgiven PPP funds that are counted toward gross receipts on Form 990 are not required to be included in the calculation of gross receipts for the purposes of claiming ERC. Museums may back out of PPP loan forgiveness purely for the purpose of calculating gross receipts for ERC qualification.

If your museum was closed for large periods of time during the pandemic as a result of government mandates, you may qualify under the first test. Alternatively, if your museum remained open, it may have suffered from significantly decreased revenues and would qualify under the second test.

There are a couple of limitations to eligibility for these credits that leaders must keep in mind. 

These tax credits are targeted at small to mid-sized organizations. To be eligible to receive ERC for 2020, an organization must have had less than 100 full-time employees in 2019. Eligibility was expanded for 2021, with organizations being required to have less than 500 employees in 2019 to be eligible to claim these credits. 

Additionally, any employee wages that were reported as payroll costs and forgiven under PPP are not eligible for the ERC. 

ERC Guidance for Museums: What To Do If You Believe You May Qualify

If your museum retained its employees throughout the pandemic, it’s possible that it is eligible to receive employee retention credits on a retroactive basis. For many nonprofit organizations, this is a benefit that could represent tens, or even hundreds, of thousands of dollars in unrealized tax benefits. Clearly, this could unlock significant new cash flow that could be used to advance the mission of the organization.

Fortunately, there is still sufficient time to partner with a nonprofit accounting firm to determine your organization’s eligibility and amend previous filings from 2020 and 2021.  

Employee retention tax credits sought for the 2020 tax year must be claimed by April 15, 2024. Credits sought for the 2021 tax year must be claimed by April 15, 2025. These follow typical tax amendment statutes, which allow businesses to amend their tax returns for three years following the original filing deadline. 

To claim these credits, nonprofits must file a separate IRS Form 941-X for each quarter they seek to claim ERC. At Smith + Howard, our nonprofit accounting team is here to help your museum determine its eligibility, quantify the potential tax benefits, and navigate the filing process. 

Our team of specialized nonprofit tax advisors and accountants serves as trusted advisors to leading nonprofits around the nation. We help leaders unlock opportunities to recognize tax savings that directly translate into increased financial support toward the mission of the nonprofit. We have helped many nonprofit organizations, including leading museums, successfully claim employee retention credits. 

Take the first step toward determining your museum’s eligibility for employee retention credits today by getting in touch with Smith + Howard. Contact an advisor now.