How It Works
This is big, a lot of little business owners do not know about this, or they've found out about it, but they don't know much about it, even lots of tax professionals don't know the ins and outs of this thing due to the fact that it's new and a lot of these modificationsthat are beneficial to entrepreneur happened in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so profitable now in 2021, more rewarding, 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, be sure to share this video with entrepreneur you understand, this video could actually be worth tens of thousands of dollars for them. And if you are a company owner and after you enjoy 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 organization and your ballpark year-over-year income, and let's see if we can get some more money back in your pocket because you can take this credit against your payroll taxes you pay by minimizing your needed employment 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 stuff your CPA must fret about. In this video I desire to tell you what you require to understand so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you told me about this?" You can be notified and take ownership of your own tax scenarios, of your service's tax situation to produce more cash flow in your service and more wealth for yourself.
Why Employee Retention Qualifications
Reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP receivers, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then reverse and declare the employee retention credit on those salaries too. The federal government doesn't look too fondly on paying your payroll for you through the PPP and then you claiming a credit versus the taxes you pay the federal government on those salaries that the federal government spent for you. That makes sense. Now, there's some preparation here. 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 best covered period that will get you full PPP forgiveness but also optimize your employee retention credit.
Likewise, for PPP forgiveness, you want to fill up that payroll bucket with as many costs as possible that do not count for employee retention credit functions. You can't declare the employee retention credit on state unemployment insurance contributions, however state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd desire to dispose all your state unemployment insurance contributions on your PPP forgiveness application to leave as much normal incomes as possible to take the employee retention credit on.
This can get extremely technical extremely quick and it's very scenario particular in terms of enhancing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, however just know that you truly 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 deduct the wages you claimed the employee retention credit on, which makes good sense as well, why should the federal government provide you a reduction for these salaries that they already offered you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy talking about this things, but let's speak about another factor why the employee retention credit is more appealing 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 get approved for the employee retention credit, you had to reveal a 50% reduction in gross invoices compared to the exact same calendar quarter in 2019.
But in 2021, for a quarter to receive the employee retention credit, you only require to show a 20% decrease in gross invoices compared to the same calendar quarter in 2019. This means far more services will qualify. My service, for instance, 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 first, since I got first round of PPP cash and second due to the fact that my organization didn't suffer that big 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, indicating that, for example, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross receipts, 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 certify for Q1 2021 based upon Q1 2021's gross receipts, you will likewise get approved for Q2 2021 given that you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so essentially if you simply get approved for Q1 and Q3 2021, you also qualify for Q2 and Q4 based upon the lookback. Even if you didn't have a sufficient decrease in profits, you can certify for the employee retention credit if you were needed to totally or partially suspend operations in your service 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 during that period of partial or full shutdown.
Common example, you own a dining establishment, 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 businesses eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the exact same wages and making more organizations eligible through the 20% decline threshold rather than the 50% decline limit, but the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, however that's absolutely 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 incomes per employee ... for that whole time period? For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in earnings per staff member per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee.
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 finest covered period that will get you full PPP forgiveness but 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 appealing 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 certify for the 2020 employee retention credit initially, due to the fact that I got first round of PPP cash and second due to the fact that my business 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 service certifies. Not only 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 same incomes and making more businesses eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is also more rewarding than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per employee ... for that whole time duration?
Just How to Begin
That will work out on behalf of their customers to obtain the ideal prices feasible for their existing customers. They will examine old billings for errors obtaining their customers reimbursements and tax credits.
Solutions provided can include:
Dedicated experts that will translate highly complex program rules and will certainly be readily available to address your questions, including:
How does the PPP funding variable right into the ERC?
What are the differences in between the 2020 as well as 2021 programs and also how does it relate to your company?
What are gathering policies for bigger, multi-state employers, and just how do I analyze numerous states executive orders?
How do part-time, Union, as well as tipped staff members impact the amount of my refunds?
Extensive examination concerning your eligibility
Detailed analysis of your case
Assistance on the declaring procedure and paperwork
Particular program knowledge that a regular certified public accountant or payroll processor might not be well-versed in
Quick and also smooth end-to-end procedure, from eligibility to asserting and also receiving reimbursements
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Ready To Start? Its Simple.
1. Whichever business you pick to work with will certainly determine whether your business qualifies for the ERC.
2. They will analyze your claim and also calculate the maximum quantity you can get.
3. Their team guides you through the claiming procedure, from starting to end, including appropriate documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 and ends on September 30, 2021, for qualified businesses.
You can obtain refunds for 2020 and also 2021 after December 31st of this year, into 2022 and also 2023. And also possibly beyond then too.
Many services have received reimbursements, and others, along with reimbursements, likewise qualified to continue receiving ERC in every payroll they process through December 31, 2021, at about 30% of their pay-roll expense.
Some organizations have gotten refunds from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now receive the ERC even if they already received a PPP funding. Note, though, that the ERC will only relate to earnings not used for the PPP.
Do we still certify if we did not) incur a 20% decrease in gross invoices .
A federal government authority called for full or partial closure of your service during 2020 or 2021. This includes your operations being restricted by business, lack of ability to travel or restrictions of team conferences.
- Gross invoice reduction standards is various for 2020 and 2021, yet is measured versus the current quarter as compared to 2019 pre-COVID amounts:
- A federal government authority called for partial or complete shutdown of your company during 2020 or 2021. This includes your operations being restricted by business, inability to travel or limitations of team conferences.
- Gross invoice decrease standards is various for 2020 as well as 2021, however is gauged against the current quarter as compared to 2019 pre-COVID quantities.
Do we still qualify if we continued to be open during the pandemic?
Yes. To qualify, your service should satisfy either among the following criteria:
- Experienced a decrease in gross invoices by 20%, or
- Had to transform service procedures due to government orders
Numerous things are considered as changes in company procedures, including changes in job functions and also the purchase of extra safety devices.