Just how It Functions
Even if you do not own an organization, be sure to share this video with organization owners you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are a business owner and after you enjoy this video you desire 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 revenue, and let's see if we can get some more cash back in your pocket since you can take this credit against your payroll taxes you pay by minimizing your required 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 form here or the Form 941 and all the payroll stuff because that's the stuff your CPA ought to fret about. In this video I desire to tell you what you need 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 scenarios, of your company's tax circumstance to create more cash flow in your organization and more wealth for yourself.
Why Employee Retention Credit Application
Factor, 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 employees and then turn around and declare the employee retention credit on those incomes. The 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 government on those incomes that the federal government paid for you. So that makes good sense. Now, there's some planning 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 choose the best covered duration that will get you full PPP forgiveness however also maximize your employee retention credit.
Also, for PPP forgiveness, you want to fill that payroll pail with as numerous costs as possible that do not count for employee retention credit purposes. For example, you can't declare the employee retention credit on state unemployment insurance coverage contributions, however state unemployment insurance contributions count toward PPP forgiveness, see? You 'd desire to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary earnings as possible to take the employee retention credit on.
Another thing to note is you can't subtract the wages you claimed the employee retention credit on, and that makes sense as well, why should the federal government offer you a reduction for these salaries that they already provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply like 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 qualify for the employee retention credit in 2021.
However in 2021, for a quarter to certify for the employee retention credit, you only require to show a 20% decrease in gross receipts compared to the exact same calendar quarter in 2019. This indicates far more organizations will certify. 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.
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 2nd because my organization didn't suffer that large 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service certifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, implying 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 identifying eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you qualify for Q1 2021 based on Q1 2021's gross receipts, you will likewise get approved for Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you just receive Q1 and Q3 2021, you also get approved for Q2 and Q4 based on the lookback. Also, even if you didn't have an enough decline in earnings, you can get approved for the employee retention credit if you were needed to completely or partially suspend operations in your organization 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 full or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying 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 new laws, making PPP recipients qualified 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 also more financially rewarding than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit amounted to 50% of all certified wages for 2020, the employee retention credit amounted to 50% of all qualified earnings you paid workers in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that entire period. So the maximum 2020 credit per staff member was $5,000. Okay, but that's nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per employee ... for that entire time period? No. Per quarter. For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in earnings per worker per quarter, so we're talking about a maximum credit of $7,000 per employee per quarter. If you're eligible all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member. That's big. That's a blessing to lots of business owners today. You see what I suggest now, right, how the employee retention credit has gone from ugly duckling in 2020 to gorgeous swan in 2021? And by the way, by the way, certified salaries consists of employer-paid health insurance coverage 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 select the best covered duration that will get you full PPP forgiveness however also 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 reason why the employee retention credit is more appealing now than it was last year, and that is that it's easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, because I got first round of PPP money and second due to the fact that my organization 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 qualifies. Not just are more businesses qualified for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the very same earnings and making more services eligible through the 20% decrease threshold rather than the 50% decrease limit, however the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of qualified salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per staff member ... for that whole time period?
How to Start
That will negotiate on part of their customers to obtain the best prices feasible for their existing customers. They will certainly examine old invoices for errors getting their customers refunds as well as tax credits.
Services provided can include:
Dedicated specialists that will analyze extremely complicated program guidelines and also will certainly be offered to answer your inquiries, including:
How does the PPP finance factor right into the ERC?
What are the distinctions between the 2020 and 2021 programs and also how does it relate to your organization?
What are gathering guidelines for bigger, multi-state companies, and also just how do I analyze numerous states executive orders?
How do part-time, Union, as well as tipped workers impact the amount of my refunds?
Comprehensive analysis regarding your eligibility
Extensive evaluation of your situation
Advice on the claiming process and also paperwork
Certain program experience that a routine CPA or payroll cpu could not be well-versed in
Rapid as well as smooth end-to-end procedure, from qualification to declaring and obtaining refunds
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Ready To Start? Its Simple.
1. Whichever firm you pick to work with will identify whether your organization certifies for the ERC.
2. They will certainly examine your case and also compute the maximum amount you can get.
3. Their group overviews you through the declaring procedure, from beginning to end, consisting of proper paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 as well as right on September 30, 2021, for eligible businesses.
You can get reimbursements for 2020 and also 2021 after December 31st of this year, into 2022 and 2023. And possibly past then as well.
Many companies have received refunds, and also others, in enhancement to refunds, likewise certified to continue getting ERC in every pay-roll they process to December 31, 2021, at close to 30% of their payroll expense.
Some organizations have gotten refunds from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can currently get the ERC even if they currently obtained a PPP loan. Note, however, that the ERC will just apply to incomes not utilized for the PPP.
sustain a 20% decline in gross invoices .
A government authority required partial or full closure of your service throughout 2020 or 2021. This includes your operations being restricted by commerce, failure to travel or restrictions of group meetings.
- Gross receipt decrease criteria is various for 2020 as well as 2021, but is determined against the existing quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority required full or partial closure of your company during 2020 or 2021. This includes your procedures being restricted by business, lack of ability to take a trip or limitations of group conferences.
- Gross invoice decrease standards is different for 2020 and 2021, however is gauged against the present quarter as compared to 2019 pre-COVID quantities.
Do we still qualify if we stayed open during 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 transform company procedures due to federal government orders
Many products are thought about as changes in business operations, consisting of shifts in task functions and the acquisition of added safety equipment.