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
Even if you do not own an organization, be sure to share this video with service owners you know, this video could actually be worth 10s of thousands of dollars for them. And if you are a service owner and after you enjoy this video you want to talk with me and a member of my team, 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 profits, and let's see if we can get some more cash back in your pocket because you can take this credit against your payroll taxes you pay by decreasing your needed work tax deposits or you can ask for an advance payment of the credit utilizing 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 stuff because that's the stuff your CPA must stress over. 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 told me about this?" You can be informed and take ownership of your own tax situations, of your service's tax scenario to produce more money flow 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 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 basic informative purposes 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 firm. Another disclaimer here, for functions of this video I am presuming that if you're seeing this you are a little company owner, which for employee retention credit functions means one hundred or less employees for functions of the 2020 credit and five hundred or less workers for purposes of the 2021 credit, if you have a business with over five hundred employees I picture you have in-house counsel, in-house CPAs who are on top of this things, but I'm here for you small organization owners who might deal with a local tax expert who is so neck-deep in income tax return today due to the fact that the government extended the tax deadline to May 17 or volume is just 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 service owners in 2021 and why weren't we talking about it in 2020, it's been around considering that then, since the CARES Act? Yes, the employee retention credit has been around because 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.
The stimulus expense 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 appealing. Essentially the employee retention credit had a glow-up between 2020 and 2021, it went from the nerdy girl with neglected eyebrows and thick glasses 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 attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll tell you why, a few reasons.
Why Employee Retention Tax Credit And Ppp
Very first factor, the employee retention credit for both 2020 and 2021 is now available to PPP recipients, but obviously you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and after that reverse and declare the employee retention credit on those earnings too. The government doesn't look too fondly on paying your payroll for you through the PPP and then you declaring a credit versus the taxes you pay the federal 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 eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to choose the finest covered period that will get you full PPP forgiveness but also maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll pail with as many expenses as possible that don't count for employee retention credit functions. For example, you can't declare the employee retention credit on state unemployment insurance contributions, however state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd desire to discard all your state joblessness insurance contributions on your PPP forgiveness application to leave as much common incomes as possible to take the employee retention credit on.
Another thing to note is you can't subtract the earnings you claimed the employee retention credit on, and that makes sense as well, why should the federal government provide you a reduction for these salaries that they currently offered you a credit for? Alright, sorry for getting a little sidetracked there, I just enjoy talking about this things, but 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 much easier to qualify for the employee retention credit in 2021.
In 2021, for a quarter to qualify for the employee retention credit, you just require to reveal a 20% decrease in gross receipts compared to the exact same calendar quarter in 2019. This means far more services will qualify. My business, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
So I didn't get approved for the 2020 employee retention credit initially, since I got very first round of PPP money and 2nd due to the fact that my company didn't suffer that big 50% decline required to get approved for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my business certifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, meaning that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross invoices, you can compare for functions 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 certify for Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you just certify for Q1 and Q3 2021, you also receive Q2 and Q4 based upon the lookback. Even if you didn't have an adequate decline in earnings, you can qualify for the employee retention credit if you were needed 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 eligible for the employee retention credit during that period of complete or partial shutdown.
Common example, you own a dining establishment, and your guv signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Also, not only are more organizations eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified 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, however the 2021 credit is likewise more profitable than the 2020 credit.
This is because for 2020, the employee retention credit amounted to 50% of all qualified incomes for 2020, the employee retention credit amounted to 50% of all certified salaries you paid employees in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in wages for that entire period. So the maximum 2020 credit per employee was $5,000. Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries 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 approximately $10,000 in wages per employee per quarter, so we're speaking about a maximum credit of $7,000 per worker per quarter. If you're eligible all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member. That's substantial. That's a blessing to lots of company owner right now. So you see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to beautiful swan in 2021, right? And by the method, by the way, certified 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 select the best covered period that will get you complete PPP forgiveness but likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just enjoy talking about this stuff, but let's talk about another reason why 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. I didn't certify for the 2020 employee retention credit initially, since I got very first round of PPP money and 2nd because my service 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 qualifies. Not only are more organizations qualified for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the very same incomes and making more companies eligible through the 20% decline limit rather than the 50% decline threshold, but the 2021 credit is also more lucrative 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 qualified earnings per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per staff member ... for that entire time period?
Exactly How to Get going
The most effective method is to function with a no-risk, contingency-based cost savings company. That will certainly negotiate on behalf of their customers to get the most effective rates feasible for their existing customers. They will examine old invoices for mistakes getting their customers reimbursements and tax credits. They can increase the earnings and also total valuation of their customers companies.
Assistance provided can include:
Dedicated professionals that will translate very intricate program policies as well as will be available to answer your questions, including:
How does the PPP loan aspect into the ERC?
What are the distinctions in between the 2020 and also 2021 programs as well as how does it relate to your organization?
What are gathering policies for larger, multi-state companies, and just how do I analyze numerous states executive orders?
How do part-time, Union, and also tipped staff members influence the amount of my refunds?
Detailed evaluation regarding your eligibility
Extensive analysis of your situation
Guidance on the asserting procedure and documentation
Details program expertise that a normal certified public accountant or payroll processor may not be well-versed in
Smooth and also fast end-to-end procedure, from eligibility to claiming as well as receiving reimbursements
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All Set To Obtain Begun? Its Simple.
1. Whichever business you pick to work with will certainly establish whether your service certifies for the ERC.
2. They will assess your claim as well as compute the optimum quantity you can receive.
3. Their team guides you through the asserting process, from beginning to finish, including appropriate documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 as well as finishes on September 30, 2021, for qualified organizations.
You can obtain refunds for 2020 as well as 2021 after December 31st of this year, into 2022 as well as 2023. And potentially beyond after that as well.
Many businesses have received reimbursements, and others, along with refunds, likewise qualified to continue obtaining ERC in every payroll they process to December 31, 2021, at about 30% of their pay-roll expense.
Some businesses have obtained refunds from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now receive the ERC also if they already obtained a PPP financing. Keep in mind, however, that the ERC will only apply to salaries not utilized for the PPP.
Do we still accredit if we did not) incur a 20% decrease in gross receipts .
A federal government authority needed partial or complete closure of your organization during 2020 or 2021. This includes your operations being limited by business, failure to travel or constraints of group meetings.
- Gross invoice reduction requirements is different for 2020 as well as 2021, but is measured versus the existing quarter as contrasted to 2019 pre-COVID amounts:
- A government authority called for full or partial shutdown of your business throughout 2020 or 2021. This includes your procedures being limited by business, lack of ability to travel or constraints of group conferences.
- Gross receipt reduction standards is various for 2020 and 2021, yet is gauged against the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we remained open throughout the pandemic?
Yes. To qualify, your business must meet either among the following standards:
- Experienced a decrease in gross receipts by 20%, or
- Needed to change service operations because of government orders
Numerous products are considered as adjustments in business procedures, including shifts in work functions and also the purchase of additional safety equipment.