Alright, everybody, so the SBA this week came out and said that it has stopped accepting new PPP applications from most lenders. The SBA informed lenders this past Tuesday that the PPP general fund was out of money and that the only remaining funds available for new applications are $8 billion set aside for community financial institutions (CFIs), which are institutions that specifically work with businesses in underserved communities. But all is not lost, dear small business owners of America. If you missed out on the PPP or if you did not qualify for the PPP, don't lose hope because you may still qualify for the employee retention credit on all those wages you didn't claim for PPP forgiveness, and this employee retention credit could be worth up to $28,000 per employee. And yes, even if you got PPP money, you can still get a piece of this employee retention credit cake.
Exactly How It Functions
This is huge, a great deal of small business owners do not learn about this, or they've found out about it, however they do not understand much about it, even lots of tax specialists don't understand the ins and outs of this thing due to the fact that it's brand-new and a lot of these changesthat are helpful to entrepreneur took place in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so financially rewarding now in 2021, more profitable, far more financially rewarding, in reality now than it was in 2020, 5x more financially rewarding at least. So even if you do not own a company, make certain to share this video with company owner you understand, this video might literally be worth 10s of countless dollars for them. And if you are a business owner and after you see this video you wish to talk with me and a member of my group, who will also be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your company and your ballpark year-over-year earnings, and let's see if we can get some more money back in your pocket because you can take this credit versus your payroll taxes you pay by reducing your needed work tax deposits or you can request an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Since that's the stuff your CPA must stress about, I am not going to get into the complexities of that type here or the Form 941 and all the payroll stuff. In this video I desire to inform you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you informed me about this?" so you can be informed and take ownership of your own tax circumstances, of your company's tax circumstance to produce more cash circulation in your service and more wealth for yourself.
About Employee Retention Tax Credit And Ppp
Alright, now let's dig into this and let's talk about the employee retention credit or the ERC as some folks like to call it, before I enter into this, I desire to state that nothing in this video is to be taken as legal or tax advice, this video is for basic educational functions just, yes, I am a CPA and a tax professional, but I am not your CPA nor your tax professional unless you have actually engaged my company as such. Another disclaimer here, for purposes of this video I am assuming that if you're enjoying this you are a small company owner, which for employee retention credit functions implies one hundred or fewer workers for functions of the 2020 credit and 5 hundred or less staff members for purposes of the 2021 credit, if you have a business with over 5 hundred staff members I envision you have in-house counsel, in-house CPAs who are on top of this things, but I'm here for you small company owners who might work with a regional tax specialist who is so neck-deep in tax returns today since the government extended the tax due date to May 17 or volume is simply the nature of their company that your tax specialist hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so lucrative for company owners in 2021 and why weren't we talking about it in 2020, it's been around since then, given that the CARES Act? Why is it getting all this buzz now that it wasn't in 2015? Well, let's back it up. Yes, the employee retention credit has actually been around given that the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love last year in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Initially, in 2020, if you got a PPP loan as a company, you were not qualified for the employee retention credit.
The stimulus costs passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it much more attractive. Essentially the employee retention credit had a glow-up between 2020 and 2021, it went from the unpopular girl with thick glasses and unkempt eyebrows and her hair up in 2020 to the belle of the ball for business owners in 2021. Why? Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll tell you why, a couple of factors.
Why Employee Retention Tax Credit And Ppp
Reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your staff members and then turn around and declare the employee retention credit on those wages. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you require to choose the best covered period that will get you complete PPP forgiveness however likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll pail with as many costs as possible that don't count for employee retention credit purposes. You can't declare the employee retention credit on state joblessness insurance contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? You 'd desire to dump all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much regular wages as possible to take the employee retention credit on.
This can get very technical extremely fast and it's really scenario specific in terms of enhancing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to dig into all that here, however just understand that you really have to do the mathematics when doing your PPP forgiveness to make sure you're not leaving anything on the table in terms of the employee retention credit. Another thing to note is you can't subtract the wages you declared the employee retention credit on, and that makes sense too, why should the government offer you a deduction for these salaries that they already gave you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like speaking about this things, however let's speak about another reason that the employee retention credit is more appealing now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you had to show a 50% decline in gross invoices compared to the same calendar quarter in 2019.
In 2021, for a quarter to qualify for the employee retention credit, you only need to reveal a 20% decrease in gross invoices compared to the very same calendar quarter in 2019. This indicates far more organizations will qualify. My service, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
I didn't qualify for the 2020 employee retention credit initially, since I got first round of PPP cash and second since my business didn't suffer that large 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. For 2021, for any quarter, you can elect to utilize the lookback quarter, suggesting that, for example, even if your Q1 2021 gross receipts aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for purposes of determining eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Ramification here is that if you certify for Q1 2021 based upon Q1 2021's gross invoices, you will likewise get approved for Q2 2021 because you certified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply get approved for Q1 and Q3 2021, you also receive Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decrease in earnings, you can certify for the employee retention credit if you were required to fully or partially suspend operations in your company during any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are qualified for the employee retention credit throughout that period of full or partial shutdown.
Common example, you own a restaurant, and your governor signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. Also, not just are more companies qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the very same wages and making more services eligible through the 20% decline limit instead of the 50% decline limit, however the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of qualified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per worker ... for that whole time duration? For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in salaries per staff member per quarter, so we're talking about an optimum credit of $7,000 per worker per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member.
If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to pick the finest covered period that will get you complete PPP forgiveness but also optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just love talking about this things, however let's talk about another reason why the employee retention credit is more attractive now than it was last year, and that is that it's easier to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got very first round of PPP money and second since my organization didn't suffer that big 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Not just are more businesses qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the very same salaries and making more companies eligible through the 20% decline limit rather than the 50% decline limit, but the 2021 credit is also more financially rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that entire time period?
Just How to Start
The best method is to deal with a no-risk, contingency-based expense savings business. That will discuss in support of their clients to obtain the most effective rates possible for their existing customers. They will certainly examine old invoices for errors getting their customers refunds and tax credits. They can boost the productivity and general evaluation of their clients companies.
Solutions provided can include:
Dedicated specialists that will analyze very intricate program regulations and will certainly be offered to address your inquiries, including:
Just how does the PPP financing factor right into the ERC?
What are the differences between the 2020 and 2021 programs as well as exactly how does it relate to your service?
What are gathering policies for bigger, multi-state companies, and how do I interpret numerous states executive orders?
How do part-time, Union, and tipped workers affect the quantity of my reimbursements?
Thorough evaluation concerning your eligibility
Detailed evaluation of your situation
Assistance on the asserting process and also documents
Specific program proficiency that a routine certified public accountant or payroll processor might not be well-versed in
Quick and smooth end-to-end procedure, from eligibility to declaring as well as receiving refunds
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All Set To Obtain Started? Its Simple.
1. Whichever business you select to work with will certainly figure out whether your business certifies and gets approvel for the ERC.
2. They will analyze your case and compute the maximum quantity you can obtain.
3. Their team overviews you with the asserting procedure, from beginning to finish, consisting of proper documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 as well as right on September 30, 2021, for eligible organizations.
You can make an application for reimbursements for 2020 as well as 2021 after December 31st of this year, right into 2022 as well as 2023. And possibly past then also.
Many organizations have received reimbursements, as well as others, along with refunds, likewise certified to proceed getting ERC in every payroll they process to December 31, 2021, at around 30% of their payroll cost.
Some organizations have actually obtained refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now receive the ERC also if they currently got a PPP funding. Keep in mind, though, that the ERC will just relate to wages not used for the PPP.
Do we still certify if we did not) sustain a 20% reduction in gross invoices .
A federal government authority called for partial or complete shutdown of your service during 2020 or 2021. This includes your procedures being limited by business, lack of ability to take a trip or restrictions of group conferences.
- Gross invoice reduction requirements is various for 2020 as well as 2021, but is measured against the existing quarter as contrasted to 2019 pre-COVID quantities:
- A federal government authority called for partial or complete closure of your business throughout 2020 or 2021. This includes your operations being restricted by commerce, inability to travel or restrictions of team conferences.
- Gross receipt decrease criteria is various for 2020 and 2021, yet is gauged against the current quarter as contrasted to 2019 pre-COVID quantities.
Do we still qualify if we remained open throughout the pandemic?
Yes. To certify, your organization has to satisfy either among the adhering to standards:
- Experienced a decline in gross invoices by 20%, or
- Had to change business operations due to government orders
Many things are considered as modifications in organization procedures, including shifts in task duties and also the purchase of additional protective equipment.