Why Employee Retention Credit

Factor, the employee retention credit for both 2020 and 2021 is now 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 workers and then turn around and declare the employee retention credit on those earnings. If you got PPP and you are qualified 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.



Likewise, for PPP forgiveness, you wish to fill up that payroll bucket with as many costs as possible that do not count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance contributions, however state joblessness insurance contributions count toward PPP forgiveness, see? You 'd want to discard all your state joblessness insurance contributions on your PPP forgiveness application to leave as much regular wages as possible to take the employee retention credit on.

So this can get really technical very quickly and it's extremely scenario particular in regards to enhancing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to go into all that here, but feel in one's bones that you really need to do the math when doing your PPP forgiveness to make certain you're not leaving anything on the table in terms of the employee retention credit. Another thing to note is you can't deduct the incomes you declared the employee retention credit on, which makes good sense as well, why should the federal government give you a deduction for these salaries that they currently provided you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply love talking about this things, however let's discuss another reason that the employee retention credit is more appealing now than it was in 2015, which is that it's easier to receive the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to reveal a 50% decrease in gross invoices compared to the same calendar quarter in 2019.

But in 2021, for a quarter to receive the employee retention credit, you just need to show a 20% decrease in gross receipts compared to the very same calendar quarter in 2019. This indicates far more companies will qualify. My organization, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.

I didn't certify for the 2020 employee retention credit first, because I got first round of PPP cash and second because my company didn't suffer that big 50% decline needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Likewise, for 2021, for any quarter, you can elect to use the lookback quarter, implying that, for example, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross invoices, 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 receive Q1 2021 based on Q1 2021's gross invoices, you will also certify for Q2 2021 since you certified in the lookback quarter of Q1 2021.

Exact same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Likewise, even if you didn't have an adequate decline in income, you can get approved for the employee retention credit if you were needed to completely or partly 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 restaurant, and your guv signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Not only are more services eligible for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the very same wages and making more services eligible through the 20% decline threshold rather than the 50% decline threshold, but the 2021 credit is also more rewarding than the 2020 credit.

This is since for 2020, the employee retention credit amounted to 50% of all qualified incomes for 2020, the employee retention credit was equal to 50% of all qualified earnings you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in salaries for that whole period. So the maximum 2020 credit per employee was $5,000. Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of certified wages per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that entire period? No. Per quarter. So for 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on approximately $10,000 in incomes per worker per quarter, so we're speaking about an optimum credit of $7,000 per worker per quarter. $7,000 times four is $28,000 if you're eligible all four quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's big. That's a godsend to numerous company owner today. You see what I mean now, right, how the employee retention credit has gone from unsightly duckling in 2020 to stunning swan in 2021? And by the method, by the method, qualified earnings includes employer-paid medical insurance premiums.


If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to select the finest covered duration that will get you full PPP forgiveness but also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just love 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 certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got first round of PPP money and second because my organization 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 service certifies. Not only are more companies eligible for the employee retention credit thanks to these brand-new laws, making PPP receivers qualified for the employee retention credit though not on the exact same salaries and making more services eligible through the 20% decrease 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 due to the fact that for 2021, the credit is equal to 70% of certified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that entire time duration?