Exactly How It Works
Even if you do not own a business, be sure to share this video with business owners you know, this video could actually be worth tens 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 email, [email protected], tell me a little about your organization and your ballpark year-over-year income, 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 needed work tax deposits or you can request an advance payment of the credit utilizing 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 because that's the things your CPA need to fret about. In this video I wish to inform you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you told me about this?" You can be notified and take ownership of your own tax situations, of your company's tax circumstance to produce more cash flow in your service and more wealth for yourself.
Why Employee Retention Credit 2020
First reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and after that turn around and declare the employee retention credit on those salaries as well. The government does not look too fondly on paying your payroll for you through the PPP and then you claiming a credit against the taxes you pay the federal government on those wages that the government spent for you. So that makes good 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 pick the very best covered period that will get you complete PPP forgiveness but likewise optimize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll container with as lots of expenses as possible that don't count for employee retention credit purposes. For instance, you can't declare the employee retention credit on state unemployment insurance coverage contributions, however state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd want to dispose all your state unemployment insurance contributions on your PPP forgiveness application to leave as much ordinary incomes as possible to take the employee retention credit on.
This can get really technical extremely fast and it's extremely circumstance particular in terms of optimizing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, however simply know that you really have to do the mathematics 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 subtract the salaries you declared the employee retention credit on, and that makes good sense too, why should the federal government give you a deduction for these wages that they already provided you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love speaking about this things, however let's talk about another reason the employee retention credit is more appealing now than it was last year, and that is that it's 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 had to reveal a 50% decline in gross receipts compared to the exact same calendar quarter in 2019.
But in 2021, for a quarter to get approved for the employee retention credit, you only require to reveal a 20% decline in gross receipts compared to the same calendar quarter in 2019. This indicates far more organizations will qualify. My service, for instance, experienced a 26% decline in gross receipts, 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 first, due to the fact that I got very first round of PPP money and 2nd because 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. Likewise, for 2021, for any quarter, you can elect to utilize the lookback quarter, meaning that, for instance, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross receipts, you can compare for purposes of determining 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 also receive Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so basically if you just receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Likewise, even if you didn't have an enough decline in profits, you can get approved for the employee retention credit if you were required to totally or partially suspend operations in your service 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 duration 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 only are more services qualified for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the exact same salaries and making more organizations eligible through the 20% decrease limit instead of the 50% decrease limit, however the 2021 credit is likewise more profitable than the 2020 credit.
This is because for 2020, the employee retention credit amounted to 50% of all qualified incomes for 2020, the employee retention credit amounted 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 salaries for that entire time period. The optimum 2020 credit per employee was $5,000. Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of qualified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per employee ... for that whole time period? No. Per quarter. So for 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on as much as $10,000 in incomes per staff member per quarter, so we're discussing an optimum credit of $7,000 per worker per quarter. If you're qualified all four quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee. That's huge. That's a blessing to numerous entrepreneur today. So you see what I indicate now, right, how the employee retention credit has gone from ugly duckling in 2020 to gorgeous swan in 2021, right? And by the method, by the way, certified salaries includes employer-paid medical insurance 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 finest covered period that will get you full PPP forgiveness but also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just love talking about this things, however 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 simpler to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP cash and 2nd due to the fact that my company 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 organization certifies. Not just are more organizations eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the exact same salaries and making more companies 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, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per staff member ... for that whole time duration?
How to Begin
That will certainly work out on behalf of their clients to get the best rates possible for their existing customers. They will examine old invoices for errors obtaining their customers refunds and credits.
Solutions supplied can include:
Dedicated specialists that will translate extremely intricate program policies as well as will certainly be readily available to answer your concerns, including:
Just how does the PPP lending aspect into the ERC?
What are the differences in between the 2020 and also 2021 programs as well as just how does it apply to your business?
What are gathering rules for larger, multi-state employers, and also how do I interpret multiple states executive orders?
Just how do part-time, Union, and also tipped staff members affect the quantity of my refunds?
Complete examination concerning your eligibility
Comprehensive evaluation of your claim
Guidance on the claiming process and also documentation
Specific program proficiency that a regular CPA or pay-roll cpu might not be well-versed in
Quick as well as smooth end-to-end process, from qualification to declaring and also receiving refunds
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Prepared To Begin? Its Simple.
1. Whichever business you select to work with will figure out whether your service qualifies and gets approvel for the ERC.
2. They will evaluate your request and calculate the maximum amount you can receive.
3. Their group guides you through the declaring procedure, from starting to end, including proper documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 and also finishes on September 30, 2021, for eligible businesses.
You can look for refunds for 2020 and 2021 after December 31st of this year, into 2022 as well as 2023. As well as possibly beyond after that also.
Many companies have received reimbursements, and also others, along with refunds, additionally certified to proceed getting ERC in every pay-roll they refine to December 31, 2021, at close to 30% of their pay-roll cost.
Some companies have actually obtained reimbursements from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, organizations can now get approved for the ERC even if they currently got a PPP funding. Keep in mind, though, that the ERC will only relate to earnings not used for the PPP.
maintain a 20% decline in gross invoices .
A federal government authority called for complete or partial shutdown of your organization during 2020 or 2021. This includes your operations being limited by business, lack of ability to travel or constraints of group conferences.
- Gross receipt reduction standards is various for 2020 as well as 2021, but is determined versus the current quarter as contrasted to 2019 pre-COVID quantities:
- A federal government authority needed full or partial closure of your organization throughout 2020 or 2021. This includes your procedures being restricted by commerce, lack of ability to take a trip or limitations of group conferences.
- Gross invoice decrease standards is various for 2020 and also 2021, but is measured versus the present quarter as contrasted to 2019 pre-COVID quantities.
Do we still certify if we remained open during the pandemic?
Yes. To qualify, your company has to meet either one of the adhering to standards:
- Experienced a decrease in gross receipts by 20%, or
- Needed to transform organization operations because of federal government orders
Several things are taken into consideration as changes in organization operations, consisting of changes in job roles and also the purchase of additional protective devices.