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 Works
This is big, a great deal of little business owners don't know about this, or they've heard about it, but they do not understand much about it, even lots of tax specialists do not understand the ins and outs of this thing due to the fact that it's new and a lot of these changesthat are advantageous to company owner took place in the middle of tax season. So in this video I'm going to dig into the employee retention credit, why it's so financially rewarding now in 2021, more profitable, much more rewarding, in reality now than it remained in 2020, 5x more profitable a minimum of. Even if you do not own a service, be sure to share this video with service owners you know, this video could literally be worth 10s of thousands of dollars for them. And if you are an entrepreneur and after you enjoy 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 email, [email protected], tell me a little about your organization and your ballpark year-over-year earnings, and let's see if we can get some more cash back in your pocket since you can take this credit versus your payroll taxes you pay by decreasing your needed work tax deposits or you can request an advance payment of the credit utilizing IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Because that's the stuff your CPA need to worry about, I am not going to get into the complexities of that type here or the Form 941 and all the payroll stuff. In this video I wish to inform you what you require to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why haven't you informed me about this?" You can be notified and take ownership of your own tax scenarios, of your company's tax circumstance to generate more money flow in your service and more wealth for yourself.
About Employee Retention 2021 Erc Calculation
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 desire to state that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for basic educational functions only, yes, I am a CPA and a tax expert, but I am not your CPA nor your tax expert unless you have actually engaged my firm. Another disclaimer here, for purposes of this video I am assuming that if you're watching this you are a small company owner, which for employee retention credit purposes means one hundred or fewer employees for purposes of the 2020 credit and 5 hundred or less workers for purposes 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 things, but I'm here for you small business owners who may deal with a local tax professional who is so neck-deep in tax returns right now because the federal government extended the tax deadline to May 17 or volume is just the nature of their company that your tax professional hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so financially rewarding for organization owners in 2021 and why weren't we talking about it in 2020, it's been around given that then, because the CARES Act? Why is it getting all this buzz now that it wasn't last year? Well, let's back it up. Yes, the employee retention credit has been around given that the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love in 2015 in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Originally, in 2020, if you got a PPP loan as an employer, you were not eligible for the employee retention credit.
Basically the employee retention credit had a glow-up between 2020 and 2021, it went from the nerdy lady with unkempt eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners in 2021. Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention 2021 Erc Calculation
Reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and then turn around and claim the employee retention credit on those wages. 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 full PPP forgiveness but likewise optimize your employee retention credit.
Likewise, for PPP forgiveness, you desire to fill that payroll pail with as many expenses as possible that don't count for employee retention credit purposes. You can't claim the employee retention credit on state joblessness insurance contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? You 'd desire to discard all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much normal salaries as possible to take the employee retention credit on.
This can get really technical very quickly and it's really situation particular in terms of optimizing 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 simply understand that you truly have to do the mathematics 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 salaries you claimed the employee retention credit on, which makes sense as well, why should the federal government offer you a reduction for these wages that they already provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy talking about this stuff, however let's talk about another reason why the employee retention credit is more attractive now than it was in 2015, and that is that it's easier to qualify for 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 receipts compared to the exact same calendar quarter in 2019.
But in 2021, for a quarter to certify for the employee retention credit, you just require to show a 20% decrease in gross receipts compared to the exact same calendar quarter in 2019. So this suggests even more companies will qualify. My service, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.
So I didn't certify for the 2020 employee retention credit first, because I got very first round of PPP cash and second due to the fact that 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 organization certifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, implying that, for instance, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross receipts, you can compare for functions of identifying 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 receipts, you will also receive Q2 2021 since you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply qualify for Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decline in revenue, you can qualify for the employee retention credit if you were required to totally or partly 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 throughout that period of complete or partial shutdown.
Typical example, you own a restaurant, and your governor 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 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 same earnings and making more companies eligible through the 20% decrease threshold rather than the 50% decrease threshold, but the 2021 credit is also more profitable than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit because 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 wages per worker ... for that whole time duration? For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in wages per employee per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member.
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 full PPP forgiveness however also optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just enjoy talking about this stuff, however 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 initially, since I got first round of PPP cash and 2nd due to the fact that my business didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Not just are more services 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 very same earnings and making more businesses eligible through the 20% decline limit rather than the 50% decrease limit, but the 2021 credit is likewise 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 equivalent to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per worker ... for that whole time duration?
Just How to Start
The very best means is to deal with a no-risk, contingency-based cost savings company. That will work out in behalf of their clients to get the very best costs feasible for their existing clients. They will certainly investigate old billings for errors getting their clients reimbursements and also tax credits. They can enhance the earnings and general valuation of their customers companies.
Services supplied can include:
Dedicated experts that will analyze very complex program guidelines and also will certainly be available to address your concerns, including:
Just how does the PPP finance variable right into the ERC?
What are the differences between the 2020 and 2021 programs as well as just how does it relate to your company?
What are aggregation guidelines for bigger, multi-state employers, and also how do I interpret numerous states executive orders?
How do part-time, Union, and also tipped staff members affect the quantity of my refunds?
Thorough examination regarding your qualification
Comprehensive evaluation of your claim
Support on the asserting process and also paperwork
Particular program experience that a regular CPA or payroll cpu may not be well-versed in
Smooth and also quick end-to-end process, from eligibility to declaring and receiving reimbursements
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|Finance Pro Plus
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|Equifax Workforce Solutions
|Omega Funding solutions
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Prepared To Start? Its Simple.
1. Whichever company you select to work with will certainly figure out whether your organization certifies and gets approvel for the ERC.
2. They will assess your claim and compute the optimum quantity you can receive.
3. Their team guides you with the asserting process, from starting to finish, consisting of appropriate documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 as well as right on September 30, 2021, for eligible employers.
You can request reimbursements for 2020 and 2021 after December 31st of this year, into 2022 and 2023. As well as potentially beyond then also.
Many services have received reimbursements, and also others, in enhancement to reimbursements, also qualified to continue getting ERC in every pay-roll they refine to December 31, 2021, at around 30% of their payroll cost.
Some businesses have obtained reimbursements from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently get the ERC also if they currently got a PPP loan. Note, however, that the ERC will just apply to earnings not used for the PPP.
Do we still certify if we did not sustain a 20% decline in gross invoices .
A government authority needed partial or complete closure of your business during 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to travel or constraints of group meetings.
- Gross invoice decrease criteria is different for 2020 and also 2021, but is determined against the current quarter as compared to 2019 pre-COVID amounts:
- A government authority needed partial or complete shutdown of your business during 2020 or 2021. This includes your operations being limited by commerce, lack of ability to travel or constraints of team meetings.
- Gross invoice reduction standards is different for 2020 as well as 2021, however is determined versus the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still certify if we stayed open throughout the pandemic?
Yes. To qualify, your business must satisfy either one of the adhering to requirements:
- Experienced a decline in gross invoices by 20%, or
- Needed to alter service operations as a result of government orders
Many things are thought about as changes in service operations, consisting of shifts in job functions and the purchase of added protective devices.