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.
Just how It Works
This is big, a lot of small company owners don't understand about this, or they've found out about it, but they do not understand much about it, even numerous tax professionals do not understand the ins and outs of this thing because it's brand-new and a great deal of these changesthat are beneficial to business owners happened in the middle of tax season. So in this video I'm going to dig into the employee retention credit, why it's so profitable now in 2021, more financially rewarding, much more rewarding, in truth now than it remained in 2020, 5x more profitable a minimum of. So even if you don't own a service, be sure to share this video with company owner you understand, this video might actually deserve tens of countless dollars for them. And if you are a company owner and after you see this video you want 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 organization and your ballpark year-over-year income, and let's see if we can get some more cash back in your pocket due to the fact that you can take this credit against your payroll taxes you pay by reducing your needed work tax deposits or you can ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
I am not going to get into the intricacies of that type here or the Form 941 and all the payroll things because that's the things your CPA must stress about. In this video I want 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 have not you informed me about this?" You can be informed and take ownership of your own tax scenarios, of your company's tax circumstance to generate more money circulation in your business and more wealth for yourself.
About Employee Retention Program
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 get into this, I want to state that nothing in this video is to be taken as legal or tax recommendations, this video is for general informational purposes only, yes, I am a tax and a certified public accountant professional, but I am not your CPA nor your tax professional unless you have engaged my company. Another disclaimer here, for purposes of this video I am presuming that if you're seeing this you are a small organization owner, which for employee retention credit functions suggests one hundred or less staff members for functions of the 2020 credit and five hundred or fewer employees for functions of the 2021 credit, if you have a business with over 5 hundred employees I envision you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you small service owners who may deal with a local tax professional who is so neck-deep in tax returns right now because the government extended the tax due date to May 17 or volume is just the nature of their service 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 financially rewarding for business owners in 2021 and why weren't we talking about it in 2020, it's been around because then, since the CARES Act? Yes, the employee retention credit has actually been around considering that the CARES Act that was passed over a year ago in March 2020, but 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.
However the stimulus expense passed in December, the Consolidated Appropriations Act, in addition to the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it far more attractive. So basically the employee retention credit had a glow-up in 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 entrepreneur 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 few reasons.
Why Employee Retention Program
First reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, however naturally you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and after that turn around and declare the employee retention credit on those incomes too. The federal 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 incomes that the federal government spent for you. 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 require to select the finest covered period that will get you complete PPP forgiveness but also optimize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll pail with as many costs as possible that don't 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 contributions count toward PPP forgiveness, see? You 'd want to discard all your state unemployment insurance contributions on your PPP forgiveness application to leave as much common incomes as possible to take the employee retention credit on.
This can get extremely technical very quickly and it's very circumstance particular in terms of optimizing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to dig into all that here, but just know that you really have to do the math 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 good sense too, why should the government provide you a reduction for these incomes that they currently offered you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply enjoy speaking about this stuff, but let's talk about another factor why the employee retention credit is more attractive now than it was in 2015, which is that it's easier to certify for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you had to show a 50% decrease in gross receipts compared to the same calendar quarter in 2019.
In 2021, for a quarter to qualify for the employee retention credit, you only require to show a 20% decrease in gross invoices compared to the very same calendar quarter in 2019. So this implies much more organizations will certify. My business, for example, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
I didn't qualify for the 2020 employee retention credit initially, since I got very first round of PPP cash and 2nd due to the fact that my company 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 company qualifies. Also, for 2021, for any quarter, you can elect to utilize the lookback quarter, implying that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for functions 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 get approved for Q1 2021 based upon Q1 2021's gross invoices, you will also certify for Q2 2021 because you qualified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just qualify for Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Also, even if you didn't have a sufficient decline in income, you can qualify for the employee retention credit if you were required to totally or partially suspend operations in your organization throughout any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are qualified for the employee retention credit during that duration of full or partial shutdown.
Typical example, you own a dining establishment, and your governor signed an executive order specifying that you require to close down indoor dining. That is an example of a partial shutdown. Likewise, not just are more businesses 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 salaries and making more organizations eligible through the 20% decrease limit instead of the 50% decline threshold, however the 2021 credit is also more profitable than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all qualified salaries for 2020, the employee retention credit amounted to 50% of all certified earnings you paid staff members in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in incomes for that whole period. The optimum 2020 credit per employee was $5,000. Okay, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per worker ... for that entire period? No. Per quarter. So for 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on as much as $10,000 in wages per worker per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. $7,000 times four is $28,000 if you're eligible all four quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's substantial. That's a blessing to lots of entrepreneur right now. You see what I imply now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021? And by the way, by the way, qualified salaries consists of employer-paid health insurance coverage 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 pick the finest 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 enjoy talking about this stuff, 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 simpler to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP money and 2nd since my service didn't suffer that large 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Not only are more companies 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 same earnings and making more organizations eligible through the 20% decline limit rather than the 50% decrease limit, however the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified earnings per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per employee ... for that entire time period?
Exactly How to Start
The best method is to work with a no-risk, contingency-based expense savings business. That will discuss on part of their customers to get the finest costs feasible for their existing customers. They will audit old invoices for mistakes getting their clients reimbursements as well as tax credits. They can increase the productivity and also overall appraisal of their customers companies.
Solutions supplied can include:
Dedicated professionals that will certainly interpret very complicated program policies as well as will certainly be readily available to address your concerns, including:
Exactly how does the PPP finance variable into the ERC?
What are the differences between the 2020 and 2021 programs and just how does it put on your company?
What are aggregation policies for bigger, multi-state companies, as well as exactly how do I interpret several states executive orders?
Exactly how do part-time, Union, and tipped workers affect the amount of my reimbursements?
Comprehensive evaluation concerning your qualification
Extensive evaluation of your claim
Assistance on the asserting procedure as well as paperwork
Details program knowledge that a normal CPA or pay-roll processor could not be well-versed in
Smooth and also rapid end-to-end procedure, from qualification to asserting and receiving refunds
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Begin? Its Simple.
1. Whichever business you select to work with will determine whether your service certifies and gets approvel for the ERC.
2. They will certainly analyze your request and also compute the optimum quantity you can obtain.
3. Their team overviews you through the declaring procedure, from beginning to end, consisting of correct paperwork.
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 qualified employers.
You can apply for refunds for 2020 as well as 2021 after December 31st of this year, into 2022 as well as 2023. And also possibly past then also.
Many companies have received reimbursements, and also others, along with reimbursements, also certified to proceed obtaining ERC in every pay-roll they refine through December 31, 2021, at about 30% of their payroll expense.
Some companies have actually obtained reimbursements from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, organizations can now get approved for the ERC also if they currently obtained a PPP finance. Keep in mind, however, that the ERC will just use to incomes not used for the PPP.
Do we still certify if we did not incur a 20% decline in gross invoices .
A government authority needed full or partial shutdown of your company during 2020 or 2021. This includes your operations being restricted by commerce, inability to take a trip or constraints of team meetings.
- Gross receipt decrease requirements is various for 2020 as well as 2021, however is determined against the present quarter as contrasted to 2019 pre-COVID amounts:
- A government authority needed complete or partial shutdown of your organization during 2020 or 2021. This includes your procedures being limited by commerce, failure to take a trip or limitations of team meetings.
- Gross invoice reduction criteria is different for 2020 as well as 2021, yet is gauged against the present quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To certify, your organization has to fulfill either among the complying with standards:
- Experienced a decrease in gross invoices by 20%, or
- Had to change company operations because of government orders
Several items are considered as modifications in service procedures, consisting of shifts in task functions and also the acquisition of added safety tools.