Exactly How It Works
Even if you do not own a business, be sure to share this video with service owners you know, this video could literally be worth tens of thousands of dollars for them. And if you are a business 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 email, [email protected], tell me a little about your service and your ballpark year-over-year earnings, and let's see if we can get some more cash back in your pocket because you can take this credit versus your payroll taxes you pay by minimizing your needed 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.
I am not going to get into the complexities of that form here or the Form 941 and all the payroll things because that's the stuff your CPA must fret about. In this video I wish to inform you what you need 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 informed and take ownership of your own tax scenarios, of your company's tax scenario to create more capital in your organization and more wealth for yourself.
Why Employee Retention Tax Credit And Ppp
First reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, but naturally 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 wages. 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 paid 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 require to select the very best covered period that will get you complete PPP forgiveness however likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as lots of expenses as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd want to dump all your state unemployment insurance contributions on your PPP forgiveness application to leave as much ordinary wages as possible to take the employee retention credit on.
So this can get really technical really fast and it's really situation particular in regards to optimizing PPP vs. ERC and my firm has tools to figure this stuff out for you, I'm not going to go into all that here, but just understand that you really have to do the math when doing your PPP forgiveness to ensure you're not leaving anything on the table in regards to 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 sense too, why should the government offer you a deduction for these salaries that they currently offered you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply enjoy talking about this stuff, however let's discuss another reason that the employee retention credit is more attractive now than it was in 2015, which is that it's simpler to get approved 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.
In 2021, for a quarter to qualify for the employee retention credit, you only require to show a 20% reduction in gross invoices compared to the very same calendar quarter in 2019. So this suggests much more businesses will qualify. My service, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
So I didn't receive the 2020 employee retention credit initially, due to the fact that I got very first round of PPP cash and 2nd due to the fact that my service didn't suffer that large 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Also, for 2021, for any quarter, you can choose to utilize the lookback quarter, suggesting that, for example, even if your Q1 2021 gross receipts aren't at least 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. Implication here is that if you get approved for Q1 2021 based upon Q1 2021's gross receipts, you will likewise receive Q2 2021 because you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply receive Q1 and Q3 2021, you also receive Q2 and Q4 based upon the lookback. Likewise, even if you didn't have an adequate decrease in profits, you can certify for the employee retention credit if you were required to totally 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 eligible for the employee retention credit during that period of full or partial shutdown.
Common example, you own a dining establishment, and your guv signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. 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 threshold, however the 2021 credit is likewise more profitable than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit was equal to 50% of all qualified salaries for 2020, the employee retention credit amounted to 50% of all certified wages you paid workers in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in salaries for that entire period. So the maximum 2020 credit per employee was $5,000. Okay, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of certified incomes per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per staff member ... 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 up to $10,000 in incomes per staff member per quarter, so we're discussing a maximum credit of $7,000 per worker per quarter. If you're eligible all four quarters, $7,000 times four is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member. That's huge. That's a godsend to many company owner right now. So you see what I indicate 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 method, certified salaries includes employer-paid health insurance premiums.
If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you need to pick the finest covered duration 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 much easier to certify 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 second since my company 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 service qualifies. Not only are more companies eligible 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 incomes and making more organizations eligible through the 20% decrease limit rather than the 50% decline limit, however the 2021 credit is likewise more rewarding than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per employee ... for that entire time duration?
Exactly How to Begin
That will certainly work out on behalf of their customers to get the finest prices possible for their existing clients. They will certainly audit old invoices for errors obtaining their clients reimbursements and credits.
Services offered can include:
Committed professionals that will interpret very intricate program rules and will certainly be readily available to address your concerns, including:
How does the PPP lending factor right into the ERC?
What are the differences in between the 2020 and also 2021 programs and just how does it use to your business?
What are aggregation policies for larger, multi-state companies, and also exactly how do I interpret numerous states executive orders?
How do part-time, Union, as well as tipped staff members impact the amount of my reimbursements?
Complete analysis concerning your eligibility
Detailed analysis of your situation
Guidance on the claiming procedure and also documents
Particular program competence that a normal CPA or payroll processor could not be well-versed in
Smooth and fast end-to-end procedure, from eligibility to claiming as well as 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 Start? Its Simple.
1. Whichever company you pick to work with will determine whether your company qualifies and gets approvel for the ERC.
2. They will certainly examine your claim and compute the optimum quantity you can receive.
3. Their team guides you through the asserting process, from starting to end, including appropriate documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 as well as ends on September 30, 2021, for qualified businesses.
You can get reimbursements for 2020 and 2021 after December 31st of this year, right into 2022 and also 2023. And also possibly beyond after that too.
Many businesses have received reimbursements, and others, along with refunds, additionally qualified to proceed getting ERC in every pay-roll they refine through December 31, 2021, at about 30% of their payroll cost.
Some companies have actually gotten reimbursements 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 get approved for the ERC also if they already received a PPP car loan. Note, though, that the ERC will just use to salaries not made use of for the PPP.
Do we still certify if we did not) incur a 20% decrease in gross invoices .
A government authority required full or partial shutdown of your company throughout 2020 or 2021. This includes your procedures being restricted by business, inability to travel or limitations of team meetings.
- Gross receipt reduction standards is various for 2020 and 2021, however is measured against the present quarter as compared to 2019 pre-COVID quantities:
- A federal government authority needed partial or full closure of your business during 2020 or 2021. This includes your operations being limited by commerce, inability to travel or restrictions of group meetings.
- Gross receipt reduction standards is different for 2020 and also 2021, however is measured versus the existing quarter as contrasted to 2019 pre-COVID quantities.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To certify, your company needs to meet either one of the adhering to criteria:
- Experienced a decrease in gross invoices by 20%, or
- Had to transform organization operations because of government orders
Several things are considered as changes in business procedures, including shifts in task roles as well as the purchase of added protective equipment.