Why Employee Retention Ertc

Factor, the employee retention credit for both 2020 and 2021 is now available to PPP recipients, but 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 wages. The government does not look too fondly on paying your payroll for you through the PPP and then you declaring a credit against the taxes you pay the federal government on those salaries that the government spent for you. So that makes sense. Now, there's some planning here. If you got PPP and you are qualified 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 complete PPP forgiveness however likewise optimize your employee retention credit.



For PPP forgiveness, you desire to fill up that payroll pail with as numerous costs as possible that don't count for employee retention credit purposes. For instance, you can't claim the employee retention credit on state joblessness insurance coverage contributions, but state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd desire to dump all your state unemployment insurance contributions on your PPP forgiveness application to leave as much normal incomes as possible to take the employee retention credit on.

This can get very technical very quick and it's very scenario particular in terms of enhancing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to dig into all that here, however just understand that you truly have to do the math 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 earnings you declared the employee retention credit on, and that makes good sense too, why should the federal government offer you a deduction for these salaries that they already provided you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy discussing this things, but let's speak about another reason that the employee retention credit is more appealing now than it was last year, which is that it's simpler to receive the employee retention credit in 2021. In 2020, for a quarter to certify for the employee retention credit, you had to show a 50% decrease in gross receipts compared to the exact same calendar quarter in 2019.

However in 2021, for a quarter to certify for the employee retention credit, you only need to show a 20% decline in gross receipts compared to the exact same calendar quarter in 2019. So this implies much more organizations will certify. My organization, for example, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.

I didn't certify for the 2020 employee retention credit first, due to the fact that I got first round of PPP cash and 2nd because my service didn't suffer that large 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Likewise, for 2021, for any quarter, you can elect to utilize the lookback quarter, indicating that, for example, even if your Q1 2021 gross receipts aren't a minimum of 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 qualify for Q1 2021 based upon Q1 2021's gross invoices, you will likewise certify 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 basically if you simply certify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based upon the lookback. Likewise, even if you didn't have an enough decline in earnings, you can receive the employee retention credit if you were required to fully 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 qualified for the employee retention credit throughout that period of complete or partial shutdown.

Typical example, you own a dining establishment, and your governor signed an executive order stating that you require to close down indoor dining. That is an example of a partial shutdown. Likewise, not only are more services 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 salaries and making more services eligible through the 20% decline limit instead of 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 was equivalent to 50% of all qualified wages for 2020, the employee retention credit amounted to 50% of all qualified earnings you paid employees between March 12, 2020, and December 31, 2020, with a limit of $10,000 in wages for that whole time duration. So the optimum 2020 credit per staff member was $5,000. Okay, but that's nothing compared to the 2021 credit because for 2021, the credit amounts to 70% of qualified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per worker ... for that whole time duration? No. Per quarter. 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 staff member per quarter, so we're talking about a maximum credit of $7,000 per employee per quarter. If you're qualified all 4 quarters, $7,000 times four 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 godsend to lots of organization owners today. So you see what I indicate now, right, how the employee retention credit has gone from unsightly duckling in 2020 to lovely swan in 2021, right? And by the way, by the method, certified earnings 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 finest covered duration that will get you complete PPP forgiveness but 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 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 very first round of PPP cash and second due to the fact that my company didn't suffer that big 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Not just are more businesses 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 same wages and making more organizations eligible through the 20% decline threshold rather than the 50% decline limit, but the 2021 credit is likewise more 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 certified incomes per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that entire time period?