How It Works
This is huge, a lot of small company owners don't understand about this, or they've found out about it, however they do not know much about it, even many tax experts do not understand the ins and outs of this thing because it's new and a lot of these changesthat are useful to entrepreneur happened in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so lucrative now in 2021, more rewarding, far more profitable, in reality now than it was in 2020, 5x more rewarding at least. So even if you don't own a company, make sure to share this video with company owner you understand, this video might actually deserve 10s of thousands of dollars for them. And if you are an entrepreneur and after you view 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 profits, and let's see if we can get some more refund in your pocket because you can take this credit against your payroll taxes you pay by reducing your required 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.
Since that's the stuff your CPA need to fret about, I am not going to get into the intricacies of that form here or the Form 941 and all the payroll things. In this video I want to tell you what you need 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?" so you can be notified and take ownership of your own tax situations, of your organization's tax situation to create more capital in your business and more wealth for yourself.
Why Employee Retention Specialists
Reason, the employee retention credit for both 2020 and 2021 is now readily 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 workers and then turn around and claim the employee retention credit on those earnings. 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 finest covered period that will get you complete PPP forgiveness but likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as numerous costs as possible that do not count for employee retention credit purposes. For instance, you can't claim the employee retention credit on state unemployment insurance coverage contributions, but state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd desire to dispose all your state unemployment insurance contributions on your PPP forgiveness application to leave as much ordinary salaries as possible to take the employee retention credit on.
So this can get extremely technical very quickly and it's really circumstance specific in regards to optimizing 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, but feel in one's bones that you truly have to do the mathematics when doing your PPP forgiveness to ensure you're not leaving anything on the table in terms of the employee retention credit. Another thing to note is you can't subtract the incomes you declared the employee retention credit on, and that makes good sense also, why should the government offer you a reduction for these incomes that they currently provided you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like discussing this stuff, but let's speak about another factor why the employee retention credit is more attractive now than it was last year, which is that it's simpler to get approved for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you had to reveal a 50% reduction in gross receipts compared to the same calendar quarter in 2019.
In 2021, for a quarter to certify for the employee retention credit, you only need to reveal a 20% decline in gross receipts compared to the same calendar quarter in 2019. This implies far more organizations will qualify. My organization, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
So I didn't get approved for the 2020 employee retention credit first, because I got preliminary of PPP money and second because my service didn't suffer that large 50% decline needed to get approved for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Also, for 2021, for any quarter, you can choose to utilize the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross receipts, 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. Implication here is that if you certify for Q1 2021 based on Q1 2021's gross invoices, you will also certify for Q2 2021 because you qualified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just certify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Likewise, even if you didn't have a sufficient decline in profits, you can certify for the employee retention credit if you were needed to completely or partly suspend operations in your service 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 partial or full shutdown.
Common example, you own a restaurant, and your guv signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. Likewise, not just are more services qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the very same incomes and making more services eligible through the 20% decline threshold instead of the 50% decline limit, but the 2021 credit is likewise more profitable than the 2020 credit.
This is since for 2020, the employee retention credit was equal to 50% of all qualified incomes for 2020, the employee retention credit was equivalent to 50% of all certified earnings you paid employees in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that entire period. So the optimum 2020 credit per worker was $5,000. Okay, however that's absolutely nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified wages per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... for that entire period? No. Per quarter. So for 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on as much as $10,000 in wages per worker per quarter, so we're speaking about a maximum credit of $7,000 per worker per quarter. $7,000 times 4 is $28,000 if you're qualified all four quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member. That's substantial. That's a godsend to numerous organization owners right now. You see what I indicate now, right, how the employee retention credit has gone from ugly duckling in 2020 to lovely swan in 2021? And by the method, by the method, certified wages 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 need to pick the finest covered duration that will get you complete PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply enjoy 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 easier to qualify 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 cash and 2nd 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 business certifies. Not only are more services qualified 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 incomes and making more companies eligible through the 20% decline threshold rather than the 50% decline threshold, but the 2021 credit is also more rewarding than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of qualified incomes per employee 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 deal with a no-risk, contingency-based cost savings company. That will certainly negotiate in support of their customers to obtain the most effective rates possible for their existing customers. They will certainly audit old billings for errors obtaining for their customers reimbursements and also credits. They can increase the productivity as well as general valuation of their customers organizations.
Assistance offered can include:
Dedicated professionals that will certainly analyze very complex program rules and will certainly be available to address your inquiries, including:
Exactly how does the PPP lending factor right into the ERC?
What are the distinctions between the 2020 and 2021 programs and how does it put on your service?
What are gathering guidelines for larger, multi-state employers, and how do I translate numerous states executive orders?
Exactly how do part-time, Union, and tipped staff members influence the quantity of my reimbursements?
Detailed evaluation concerning your eligibility
Extensive evaluation of your claim
Guidance on the declaring procedure and also paperwork
Certain program competence that a routine CPA or payroll processor could not be well-versed in
Smooth and also fast end-to-end procedure, from eligibility to claiming as well as getting reimbursements
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Ready To Obtain Begun? Its Simple.
1. Whichever company you pick to work with will certainly establish whether your company qualifies and gets approvel for the ERC.
2. They will certainly evaluate your case as well as calculate the maximum quantity you can get.
3. Their group overviews you via the asserting process, from beginning to end, including appropriate documents.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and right on September 30, 2021, for qualified organizations.
You can look for reimbursements for 2020 and also 2021 after December 31st of this year, into 2022 as well as 2023. And potentially beyond after that as well.
Many organizations have received refunds, and others, along with refunds, also certified to proceed receiving ERC in every payroll they process to December 31, 2021, at around 30% of their payroll expense.
Some services have obtained reimbursements from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now get the ERC also if they currently got a PPP funding. Note, however, that the ERC will only relate to earnings not utilized for the PPP.
sustain a 20% reduction in gross invoices .
A federal government authority needed complete or partial shutdown of your organization during 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to take a trip or constraints of team meetings.
- Gross receipt reduction requirements is various for 2020 and 2021, but is determined versus the current quarter as contrasted to 2019 pre-COVID amounts:
- A government authority needed partial or full shutdown of your company during 2020 or 2021. This includes your operations being restricted by commerce, inability to travel or limitations of team meetings.
- Gross invoice decrease requirements is different for 2020 as well as 2021, yet is gauged versus the existing quarter as compared to 2019 pre-COVID quantities.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To certify, your company must meet either one of the complying with requirements:
- Experienced a decrease in gross receipts by 20%, or
- Needed to alter business procedures due to federal government orders
Lots of things are considered as modifications in service procedures, consisting of shifts in job roles and the acquisition of added protective devices.