Why Employee Retention Tax Credit 2021

First factor, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, but obviously 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 salaries as well. The federal government does not 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 incomes that the federal government paid for you. 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 select the finest covered period that will get you full PPP forgiveness but also optimize your employee retention credit.



Likewise, for PPP forgiveness, you desire to fill that payroll container with as numerous costs as possible that don't count for employee retention credit purposes. You can't claim the employee retention credit on state joblessness insurance coverage contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd desire to dispose all your state joblessness insurance contributions on your PPP forgiveness application to leave as much ordinary incomes as possible to take the employee retention credit on.

So this can get extremely technical extremely quick and it's extremely scenario particular in terms of optimizing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to go into all that here, but feel in one's bones that you actually have to do the math when doing your PPP forgiveness to make certain you're not leaving anything on the table in regards to the employee retention credit. Another thing to note is you can't deduct the salaries you claimed the employee retention credit on, which makes good sense also, why should the government offer you a reduction for these wages that they currently provided you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply enjoy talking about this things, but let's talk about another reason the employee retention credit is more attractive now than it was last year, and that is that it's much easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to get approved for the employee retention credit, you needed to show a 50% decrease in gross receipts compared to the exact same calendar quarter in 2019.

In 2021, for a quarter to qualify for the employee retention credit, you just require to reveal a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. So this suggests far more organizations will certify. My company, for example, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.

I didn't qualify for the 2020 employee retention credit initially, since I got first round of PPP cash and 2nd because my organization didn't suffer that large 50% decline needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, indicating that, for example, 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 identifying eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you get approved for Q1 2021 based upon Q1 2021's gross receipts, you will likewise certify for Q2 2021 because you certified in the lookback quarter of Q1 2021.

Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you just qualify for Q1 and Q3 2021, you also certify for Q2 and Q4 based upon the lookback. Even if you didn't have an adequate decline in revenue, you can qualify for the employee retention credit if you were needed to completely 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 during that duration of partial or full shutdown.

Common example, you own a dining establishment, and your guv signed an executive order mentioning that you require to close down indoor dining. That is an example of a partial shutdown. Not just are more services 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 salaries and making more companies eligible through the 20% decline limit rather than the 50% decline threshold, but the 2021 credit is also more rewarding than the 2020 credit.

This is because for 2020, the employee retention credit amounted to 50% of all certified incomes for 2020, the employee retention credit was equivalent to 50% of all certified incomes you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that whole time period. So the optimum 2020 credit per employee was $5,000. Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified earnings per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per staff member ... 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 up to $10,000 in salaries per staff member per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. If you're eligible all four quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's huge. That's a blessing to numerous company owner today. You see what I indicate now, right, how the employee retention credit has gone from ugly duckling in 2020 to stunning swan in 2021? And by the way, by the method, certified incomes consists of employer-paid health insurance premiums.


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 finest covered period that will get you full 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 reason why the employee retention credit is more attractive 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 qualify for the 2020 employee retention credit initially, since I got very first round of PPP money and second since my company didn't suffer that big 50% decline needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Not only are more companies qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the exact same salaries and making more companies eligible through the 20% decline threshold rather than the 50% decrease threshold, but the 2021 credit is likewise more financially rewarding than the 2020 credit.

Not bad, but that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per employee ... for that whole time period?