Just how It Works
This is big, a great deal of small company owners don't understand about this, or they've become aware of it, but they do not understand much about it, even lots of tax professionals do not understand the ins and outs of this thing since it's brand-new and a lot of these changesthat are beneficial to company owner happened in the middle of tax season. So in this video I'm going to go into the employee retention credit, why it's so lucrative now in 2021, more lucrative, much more financially rewarding, in truth now than it remained in 2020, 5x more lucrative at least. So even if you do not own an organization, make certain to share this video with company owner you understand, this video might actually be worth tens of countless 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 group, who will also be either a CPA like myself or an EA, shoot me an email, [email protected], inform me a little about your business and your ballpark year-over-year revenue, and let's see if we can get some more cash back in your pocket because you can take this credit versus your payroll taxes you pay by reducing your needed employment 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 complexities of that kind here or the Form 941 and all the payroll things because that's the stuff your CPA ought to stress over. In this video I desire to inform you what you require 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?" You can be informed and take ownership of your own tax circumstances, of your business's tax scenario to generate more money circulation in your organization and more wealth for yourself.
Why Employee Retention Credit Eligibility
Very first factor, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but obviously you can't double dip. You can't get PPP for the hundred thousand dollars you paid your staff members and after that reverse and claim the employee retention credit on those wages also. The federal government doesn't look too fondly on paying your payroll for you through the PPP and after that you claiming a credit against the taxes you pay the government on those incomes 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 select the finest covered duration that will get you complete PPP forgiveness but also maximize your employee retention credit.
Also, for PPP forgiveness, you wish to fill that payroll container with as lots of costs as possible that do not count for employee retention credit purposes. You can't claim the employee retention credit on state unemployment insurance contributions, however state joblessness insurance coverage contributions count towards PPP forgiveness, see? So you 'd wish to dump all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much regular salaries as possible to take the employee retention credit on.
Another thing to note is you can't subtract the earnings you declared the employee retention credit on, and that makes sense as well, why should the federal government give you a reduction for these incomes that they currently provided you a credit for? Alright, sorry for getting a little sidetracked there, I just like talking about this stuff, 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 much easier to qualify for the employee retention credit in 2021.
In 2021, for a quarter to qualify for the employee retention credit, you only require to show a 20% decrease in gross invoices compared to the very same calendar quarter in 2019. So this means even more organizations will certify. My company, 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 certify for the 2020 employee retention credit initially, because I got first round of PPP money and 2nd because my company didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business 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 at least 20% lower than your Q1 2019 gross receipts, you can compare for functions 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 get approved for Q1 2021 based upon Q1 2021's gross receipts, you will also receive Q2 2021 considering that you certified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you just qualify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based upon the lookback. Even if you didn't have an enough decline in profits, you can qualify for the employee retention credit if you were required to fully or partly suspend operations in your service throughout any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are qualified for the employee retention credit during that duration of partial or full shutdown.
Typical 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. Likewise, not only are more businesses qualified for the employee retention credit thanks to these new laws, making PPP recipients qualified for the employee retention credit though not on the same wages and making more companies eligible through the 20% decrease threshold instead of the 50% decline threshold, however the 2021 credit is likewise more lucrative than the 2020 credit.
This is because for 2020, the employee retention credit was equal to 50% of all qualified incomes for 2020, the employee retention credit amounted to 50% of all qualified earnings you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that whole time period. The maximum 2020 credit per staff member was $5,000. Okay, but that's nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified incomes per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per staff member ... for that whole time duration? No. Per quarter. 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 employee per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. $7,000 times four is $28,000 if you're eligible all 4 quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's big. That's a blessing to lots of business owners today. You see what I mean now, right, how the employee retention credit has gone from unsightly duckling in 2020 to gorgeous swan in 2021? And by the method, by the way, certified wages includes employer-paid medical 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 select the finest covered duration that will get you complete PPP forgiveness however likewise optimize 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 appealing now than it was last year, and that is that it's much easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, since I got very first round of PPP cash and 2nd since my organization didn't suffer that big 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Not just are more organizations 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 incomes and making more services eligible through the 20% decrease threshold rather than the 50% decrease limit, but the 2021 credit is likewise more profitable than the 2020 credit.
Not bad, however that's 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 staff member ... for that whole time period?
Exactly How to Begin
That will discuss on part of their customers to obtain the finest costs feasible for their existing customers. They will certainly audit old invoices for mistakes obtaining their customers refunds and also credits.
Solutions supplied can include:
Dedicated specialists that will certainly translate extremely complicated program guidelines as well as will certainly be readily available to address your questions, including:
How does the PPP financing element right into the ERC?
What are the distinctions between the 2020 and 2021 programs and also just how does it put on your business?
What are aggregation rules for bigger, multi-state companies, and exactly how do I analyze several states executive orders?
Just how do part-time, Union, as well as tipped workers affect the amount of my refunds?
Complete examination concerning your eligibility
Extensive analysis of your situation
Assistance on the declaring process as well as paperwork
Certain program competence that a routine CPA or payroll cpu could not be well-versed in
Rapid and also smooth end-to-end procedure, from qualification to asserting and also getting reimbursements
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Prepared To Get Going? Its Simple.
1. Whichever business you select to work with will identify whether your service certifies and gets approvel for the ERC.
2. They will assess your request as well as calculate the maximum quantity you can get.
3. Their group guides you via the claiming procedure, from beginning to end, consisting of appropriate paperwork.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and right on September 30, 2021, for eligible businesses.
You can apply for refunds for 2020 and also 2021 after December 31st of this year, into 2022 and 2023. As well as potentially past then as well.
Many businesses have received reimbursements, and others, in enhancement to refunds, additionally qualified to continue receiving ERC in every payroll they refine through December 31, 2021, at about 30% of their pay-roll cost.
Some businesses have received refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can currently get approved for the ERC even if they currently obtained a PPP car loan. Keep in mind, though, that the ERC will just relate to incomes not made use of for the PPP.
Do we still qualify if we did not incur a 20% decline in gross invoices .
A federal government authority called for full or partial closure of your organization throughout 2020 or 2021. This includes your operations being restricted by commerce, failure to travel or limitations of group conferences.
- Gross invoice reduction requirements is different for 2020 as well as 2021, however is gauged against the present quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority needed complete or partial closure of your service throughout 2020 or 2021. This includes your procedures being limited by business, failure to travel or limitations of group meetings.
- Gross invoice reduction requirements is various for 2020 as well as 2021, yet is determined against the existing quarter as contrasted to 2019 pre-COVID quantities.
Do we still certify if we stayed open throughout the pandemic?
Yes. To certify, your business has to fulfill either among the following standards:
- Experienced a decline in gross invoices by 20%, or
- Needed to alter business operations as a result of federal government orders
Numerous things are considered as modifications in organization operations, consisting of shifts in work roles and the purchase of added protective equipment.