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 don't own a service, be sure to share this video with service owners you understand, this video might actually be worth 10s of thousands of dollars for them. And if you are an organization owner and after you watch this video you want 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], inform me a little about your company 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 against your payroll taxes you pay by lowering your needed work 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 intricacies of that kind here or the Form 941 and all the payroll things since that's the things your CPA need to stress about. In this video I desire to inform you what you need to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you informed me about this?" You can be informed and take ownership of your own tax situations, of your company's tax scenario to create more cash flow in your organization and more wealth for yourself.
About Employee Retention Credit Irs
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, prior to 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 general informative functions only, yes, I am a tax and a cpa professional, however 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 assuming that if you're enjoying this you are a small organization owner, which for employee retention credit purposes means one hundred or less workers for purposes of the 2020 credit and 5 hundred or less staff members for purposes of the 2021 credit, if you have a business with over 5 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 company owners who might work with a local tax expert who is so neck-deep in income tax return right now because the government extended the tax deadline to May 17 or volume is simply the nature of their organization that your tax specialist hasn't had the time to dig into the weeds here like I have.
So employee retention credit, why is it so rewarding for company owner in 2021 and why weren't we discussing it in 2020, it's been around ever since, considering that 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 because the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love in 2015 in 2020 because of the PPP, the Paycheck Protection Program. Originally, in 2020, if you got a PPP loan as an employer, you were not qualified for the employee retention credit.
The stimulus expense passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made changes to the ERC making it much more attractive. Generally the employee retention credit had a glow-up between 2020 and 2021, it went from the unpopular lady with thick glasses and unkempt eyebrows and her hair up in 2020 to the belle of the ball for service owners in 2021. Why? Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll inform you why, a couple of factors.
Why Employee Retention Credit Irs
Reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, 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 earnings. The government doesn't look too fondly on paying your payroll for you through the PPP and after that you declaring a credit versus the taxes you pay the federal government on those wages that the government spent for you. So that makes sense. Now, there's some preparation here. 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 very best covered period that will get you complete PPP forgiveness but also maximize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll container with as numerous costs as possible that do not count for employee retention credit purposes. You can't declare the employee retention credit on state unemployment insurance contributions, but state unemployment insurance contributions count towards PPP forgiveness, see? You 'd want to dump all your state joblessness insurance contributions on your PPP forgiveness application to leave as much normal earnings as possible to take the employee retention credit on.
Another thing to note is you can't subtract the wages you declared the employee retention credit on, and that makes sense as well, why should the government offer you a deduction for these incomes that they already offered you a credit for? Alright, sorry for getting a little sidetracked there, I simply like 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.
However in 2021, for a quarter to receive the employee retention credit, you just need to show a 20% decline in gross receipts compared to the same calendar quarter in 2019. This indicates far more companies will certify. My company, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.
I didn't certify for the 2020 employee retention credit initially, due to the fact that I got first round of PPP money and second because my organization didn't suffer that big 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service qualifies. For 2021, for any quarter, you can choose to use the lookback quarter, indicating 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 functions of figuring out 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 invoices, you will likewise receive Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you just get approved for Q1 and Q3 2021, you also receive Q2 and Q4 based upon the lookback. Even if you didn't have an enough decrease in income, you can certify for the employee retention credit if you were required to completely or partially suspend operations in your business 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 throughout that period of complete or partial shutdown.
Common example, you own a restaurant, and your guv signed an executive order stating that you require to close 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 receivers eligible for the employee retention credit though not on the very same earnings and making more organizations eligible through the 20% decrease threshold rather than the 50% decline threshold, however the 2021 credit is likewise more profitable than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified incomes per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries 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 worker per quarter, so we're talking about an optimum credit of $7,000 per employee per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker.
If you got PPP and you are qualified 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 full PPP forgiveness however also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply love talking about this things, 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 easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, since I got first round of PPP cash and second because my service didn't suffer that big 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Not just are more companies qualified for the employee retention credit thanks to these new laws, making PPP receivers qualified 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 threshold, however the 2021 credit is also more rewarding than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit because 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 incomes per employee ... for that entire time period?
Exactly How to Get going
The most effective way is to collaborate with a no-risk, contingency-based expense savings firm. That will bargain in behalf of their customers to obtain the very best rates possible for their existing customers. They will certainly examine old billings for errors getting their clients reimbursements as well as tax credits. They can boost the earnings and also overall valuation of their clients organizations.
Solutions provided can include:
Committed professionals that will certainly analyze highly intricate program guidelines and will be readily available to answer your questions, including:
How does the PPP loan element right into the ERC?
What are the distinctions between the 2020 and 2021 programs and also just how does it apply to your business?
What are aggregation regulations for bigger, multi-state companies, and how do I translate multiple states executive orders?
Exactly how do part-time, Union, as well as tipped staff members influence the amount of my refunds?
Thorough analysis concerning your eligibility
Comprehensive analysis of your situation
Support on the claiming procedure and paperwork
Details program know-how that a routine CPA or payroll cpu might not be well-versed in
Rapid and also smooth end-to-end process, from eligibility to asserting and also obtaining reimbursements
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All Set To Get Going? Its Simple.
1. Whichever business you choose to work with will certainly establish whether your service certifies for the ERC.
2. They will certainly analyze your case and also compute the maximum amount you can receive.
3. Their team overviews you through the asserting procedure, from beginning to end, consisting of appropriate documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 as well as right on September 30, 2021, for qualified organizations.
You can obtain reimbursements for 2020 and also 2021 after December 31st of this year, right into 2022 and also 2023. And potentially past after that also.
Many companies have received refunds, as well as others, in addition to refunds, likewise qualified to continue obtaining ERC in every pay-roll they process through December 31, 2021, at about 30% of their payroll cost.
Some businesses have received refunds 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 even if they already received a PPP lending. Keep in mind, however, that the ERC will just use to earnings not utilized for the PPP.
Do we still qualify if we did not incur a 20% reduction in gross invoices .
A federal government authority needed partial or complete shutdown of your organization throughout 2020 or 2021. This includes your procedures being restricted by business, failure to take a trip or restrictions of team conferences.
- Gross receipt reduction criteria is various for 2020 and also 2021, however is measured versus the current quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority needed partial or complete closure of your service during 2020 or 2021. This includes your operations being limited by commerce, inability to travel or restrictions of group meetings.
- Gross invoice decrease criteria is various for 2020 as well as 2021, yet is gauged versus the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we continued to be open throughout the pandemic?
Yes. To certify, your organization must fulfill either one of the complying with criteria:
- Experienced a decrease in gross invoices by 20%, or
- Needed to alter service operations due to federal government orders
Numerous items are thought about as changes in business operations, including changes in work duties as well as the purchase of extra protective tools.