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 Works
Even if you do not own an organization, be sure to share this video with organization owners you understand, this video could literally be worth 10s of thousands of dollars for them. And if you are a service owner and after you enjoy this video you desire to talk with me and a member of my group, who will likewise be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your business and your ballpark year-over-year revenue, 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 lowering your required employment 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 ought to worry about, I am not going to get into the intricacies of that kind here or the Form 941 and all the payroll things. In this video I want to inform you what you require to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you informed me about this?" so you can be notified and take ownership of your own tax situations, of your business's tax scenario to create more capital in your organization and more wealth for yourself.
About Employee Retention 2021 Erc Calculation
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, prior to I enter into this, I want to say that absolutely nothing in this video is to be taken as legal or tax guidance, this video is for general informational purposes only, yes, I am a CPA and a tax expert, however I am not your CPA nor your tax professional unless you have actually engaged my firm as such. Another disclaimer here, for functions of this video I am assuming that if you're seeing this you are a little service owner, which for employee retention credit functions means one hundred or fewer staff members for purposes of the 2020 credit and 5 hundred or fewer employees for functions of the 2021 credit, if you have a business with over five 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 little organization owners who may work with a local tax expert who is so neck-deep in income tax return today because the federal government extended the tax due date to May 17 or volume is simply the nature of their business that your tax professional hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so financially rewarding for service owners in 2021 and why weren't we talking about it in 2020, it's been around since then, because the CARES Act? Yes, the employee retention credit has been around since 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 because of the PPP, the Paycheck Protection Program.
The stimulus bill 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 woman with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for organization 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 inform you why, a couple of factors.
Why Employee Retention 2021 Erc Calculation
Very first factor, 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 employees and then turn around and declare the employee retention credit on those wages. The government doesn't look too fondly on paying your payroll for you through the PPP and after that you claiming a credit versus the taxes you pay the government on those salaries that the government paid for you. So that makes sense. Now, there's some preparation here. If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you need to select the very best covered duration that will get you full PPP forgiveness however also maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll container with as numerous costs as possible that do not count for employee retention credit functions. For example, you can't claim the employee retention credit on state joblessness insurance contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? You 'd want to dump all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much normal wages as possible to take the employee retention credit on.
Another thing to note is you can't subtract the incomes you claimed the employee retention credit on, and that makes sense as well, why should the federal government provide you a deduction for these earnings that they already offered you a credit for? Alright, sorry for getting a little sidetracked there, I simply love talking about this things, however let's talk about another factor why the employee retention credit is more attractive now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021.
However in 2021, for a quarter to qualify for the employee retention credit, you just need to reveal a 20% reduction in gross receipts compared to the exact same calendar quarter in 2019. So this indicates even more services will certify. My service, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
I didn't certify for the 2020 employee retention credit first, since I got very first round of PPP cash and 2nd since my service didn't suffer that large 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Also, for 2021, for any quarter, you can choose to use the lookback quarter, meaning that, for instance, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, you can compare for purposes of figuring out eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you receive Q1 2021 based on Q1 2021's gross receipts, you will likewise qualify for Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply get approved for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Even if you didn't have an enough decrease in profits, you can certify for the employee retention credit if you were needed to fully or partially suspend operations in your business 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 duration of partial or full shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Likewise, not just are more organizations qualified for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the exact same earnings and making more services eligible through the 20% decrease limit instead of the 50% decline threshold, however the 2021 credit is likewise more profitable than the 2020 credit.
This is because for 2020, the employee retention credit was equivalent to 50% of all certified incomes for 2020, the employee retention credit amounted to 50% of all certified incomes you paid staff members in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in earnings for that entire time period. The maximum 2020 credit per staff member was $5,000. Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that whole time period? No. Per quarter. So for 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on as much as $10,000 in salaries per employee per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. $7,000 times four is $28,000 if you're qualified all 4 quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member. That's huge. That's a blessing to lots of company owner right now. So you see what I suggest now, right, how the employee retention credit has gone from unsightly duckling in 2020 to stunning swan in 2021, right? And by the method, by the way, qualified wages includes employer-paid health insurance premiums.
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 full PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this things, but let's talk about another factor why the employee retention credit is more attractive now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, due to the fact that I got very first round of PPP money and 2nd due to the fact that my business didn't suffer that large 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Not just are more companies qualified for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the exact same wages and making more businesses eligible through the 20% decline threshold rather than the 50% decline limit, but the 2021 credit is also more profitable 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 wages per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that whole time duration?
Exactly How to Start
That will certainly negotiate on part of their customers to get the ideal prices possible for their existing customers. They will certainly investigate old billings for mistakes obtaining their clients refunds and also tax credits.
Services provided can include:
Committed specialists that will certainly analyze very complex program guidelines and will certainly be available to address your inquiries, including:
Just how does the PPP financing element into the ERC?
What are the distinctions between the 2020 as well as 2021 programs and how does it put on your organization?
What are gathering rules for larger, multi-state companies, and just how do I interpret numerous states executive orders?
Exactly how do part-time, Union, as well as tipped employees impact the quantity of my refunds?
Comprehensive evaluation regarding your eligibility
Extensive analysis of your claim
Assistance on the asserting procedure and also documents
Certain program proficiency that a routine certified public accountant or payroll cpu may not be well-versed in
Smooth and also rapid end-to-end procedure, from eligibility to declaring and also receiving reimbursements
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|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Prepared To Get Going? Its Simple.
1. Whichever firm you pick to work with will certainly figure out whether your organization certifies for the ERC.
2. They will assess your case and also calculate the maximum amount you can obtain.
3. Their group guides you via the declaring procedure, from starting to finish, including correct documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and also ends on September 30, 2021, for qualified employers.
You can use for reimbursements for 2020 and 2021 after December 31st of this year, into 2022 as well as 2023. And potentially past after that as well.
Many organizations have received refunds, and also others, along with refunds, likewise qualified to continue receiving ERC in every pay-roll they process to December 31, 2021, at around 30% of their pay-roll expense.
Some services have received refunds from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, organizations can currently certify for the ERC also if they already got a PPP finance. Note, though, that the ERC will only put on salaries not utilized for the PPP.
Do we still certify if we did not) incur a 20% reduction in gross billings .
A federal government authority required partial or complete closure of your business throughout 2020 or 2021. This includes your procedures being limited by business, failure to travel or restrictions of group meetings.
- Gross receipt reduction criteria is various for 2020 and 2021, but is determined versus the existing quarter as compared to 2019 pre-COVID amounts:
- A federal government authority required complete or partial shutdown of your business during 2020 or 2021. This includes your procedures being limited by business, lack of ability to take a trip or limitations of team conferences.
- Gross receipt reduction criteria is different for 2020 and also 2021, but is determined against the existing quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we stayed open during the pandemic?
Yes. To certify, your company has to satisfy either among the following criteria:
- Experienced a decrease in gross receipts by 20%, or
- Had to alter business operations due to federal government orders
Lots of items are thought about as adjustments in company operations, consisting of shifts in task functions and the acquisition of additional protective tools.