The COVID-19 pandemic’s effects have been wide-reaching, and higher education hasn’t been immune. Here, we answer ten common questions that can help higher education institutions navigate the challenges associated with the pandemic and its potential aftermath.

1. What constitutes all operations of a tax-exempt organization?

The employee retention tax credit (ERTC) requires either a significant decline in gross receipts or a partial or full suspension due to a government order. A significant decline occurs if an institution’s gross receipts for a quarter declined by more than 50% when compared with the same quarter in the prior year.

For tax-exempt organizations under section 501(c), and those exempt under 501(a) of the Internal Revenue Code (IRC), significant decline shall apply to all operations. Detailed guidance on what constitutes all operations hasn’t been provided.

2. Do I need to register employment taxes in states where employees are working remotely?

Some states are relaxing their nexus thresholds and making exceptions. However, there is more likelihood that this strategy would be available for income tax withholding as opposed to state unemployment insurance (SUI) or workers’ compensation.  We recommend you consult with each state as situations arise.

3. What deposits and payments of employment taxes are employers entitled to defer?

Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer’s portion of Social Security taxes and certain railroad retirement taxes. 

4. If I benefit from the deferral of payroll taxes, can I also obtain a loan through the Payroll Protection Program (PPP)?

You may obtain a PPP loan and defer deposit and payment of the employer’s share of Social Security tax that otherwise would be required to be made on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with Section 1106 of the CARES Act. 

Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of Social Security tax due after that date. 

5. Are the payroll tax credits and deferrals available to private colleges, private universities, and state institutions?

The paid sick leave, expanded paid Family and Medical Leave Act (FMLA) leave, and retention credits each have employee thresholds to determine the employer benefit or to determine eligibility in the case of the leave credits. Typically, paid FMLA and sick leave credits are for organizations with up to 500 employees, and the ERTC is for organizations of any size but with more credit opportunity on a per-employee basis if less than 100 employees.

Additionally, while paid sick leave and expanded FMLA leave are required to be provided by most government employers, they aren’t eligible for the applicable tax credits. Government employers also aren’t eligible for the ERTC. 

Consult with an employment attorney to determine the paid leave compliance requirements for your institution.

6. Can my institution defer its deposit and payment of the employer’s share of Social Security tax if also eligible and claiming the refundable leave tax credits and the ERTC?  

Yes, institutions that defer the deposit and payment of the employer’s share of Social Security tax are still eligible to claim refundable paid leave credits or the ERTC. The amount of deferral can be figured prior to determining:

• Whether the employer is entitled to the paid leave credits or the ERTC
• The amount of employment tax deposits it may retain in anticipation of these credits, advance of any credits, or the amount of any refunds with respect to these credits

7. If I’m not required to provide the paid sick leave and expanded FMLA leave under the Families First Coronavirus Response Act (FFCRA) but choose to, is my institution eligible for the payroll tax credits?

You’re only eligible for the tax credits if you’re an employer that is required by the FFCRA to provide these benefits—and in fact do so. Consult with an employment attorney to determine eligibility or compliance requirement.

8. Do I have to generate unrelated business income to claim the tax credits available to my institution? 

No, these credits are payroll tax credits and can be claimed by filing quarterly employment tax reports and using Form 7200 through the payroll tax filing process.

9. Are you able to take all of the tax credits and payroll tax deferrals available? 

Wages for the retention credit don’t also count as wages towards the paid sick leave and expanded FMLA leave credits and vice versa. Additionally, employees aren’t counted for the retention credit if the institution is also allowed a work opportunity tax credit (WOTC).

10. What is the healthcare tax credit we have heard about and how do we claim it?

There is not a specific health care payroll tax credit under the FFCRA or CARES Act, however, you can increase tax credits you’re eligible for by including qualified health plan expenses allocable to wages. Qualified health plan expenses refer to the amounts paid or incurred by the eligible employer to provide and maintain a group health plan to the extent that such amounts are excluded from gross income of employees by reason of section 106(a) of the Code.

We’re Here to Help

If you have any questions about payroll and benefits for your higher education institution, please contact your Moss Adams professional.