Alright, everybody, so the SBA this week came out and said that it has stopped accepting new PPP applications from most lenders. The SBA informed lenders this past Tuesday that the PPP general fund was out of money and that the only remaining funds available for new applications are $8 billion set aside for community financial institutions (CFIs), which are institutions that specifically work with businesses in underserved communities. But all is not lost, dear small business owners of America. If you missed out on the PPP or if you did not qualify for the PPP, don't lose hope because you may still qualify for the employee retention credit on all those wages you didn't claim for PPP forgiveness, and this employee retention credit could be worth up to $28,000 per employee. And yes, even if you got PPP money, you can still get a piece of this employee retention credit cake.
Exactly How It Functions
This is big, a lot of small company owners do not learn about this, or they've found out about it, but they do not know much about it, even lots of tax specialists do not understand the ins and outs of this thing since it's new and a lot of these changesthat are advantageous to business owners took place in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so profitable now in 2021, more financially rewarding, far more financially rewarding, in truth now than it was in 2020, 5x more profitable at least. Even if you don't own a business, be sure to share this video with service owners you know, this video might literally be worth tens of thousands of dollars for them. And if you are an entrepreneur and after you see this video you wish 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], inform me a little about your company and your ballpark year-over-year income, and let's see if we can get some more cash back in your pocket due to the fact that you can take this credit versus your payroll taxes you pay by lowering your needed employment 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 complexities of that form here or the Form 941 and all the payroll things because that's the stuff your CPA ought to fret about. In this video I want 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?" so you can be notified and take ownership of your own tax situations, of your service's tax scenario to produce more cash flow in your service and more wealth on your own.
About Employee Retention Tax Credit And Ppp
Alright, now let's dig into this and let's talk about the employee retention credit or the ERC as some folks like to call it, prior to I get into this, I desire to state that absolutely nothing in this video is to be taken as legal or tax recommendations, this video is for basic informative purposes only, yes, I am a tax and a cpa expert, however I am not your CPA nor your tax expert unless you have actually engaged my company. Another disclaimer here, for functions of this video I am presuming that if you're enjoying this you are a small company owner, which for employee retention credit purposes means one hundred or fewer staff members for purposes of the 2020 credit and five hundred or less staff members for functions of the 2021 credit, if you have a company with over five hundred employees I picture you have in-house counsel, in-house CPAs who are on top of this things, however I'm here for you small company owners who may deal with a regional tax expert who is so neck-deep in tax returns today because the federal government extended the tax due date to May 17 or volume is just the nature of their company that your tax specialist hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so lucrative for business owners in 2021 and why weren't we talking about it in 2020, it's been around because then, because the CARES Act? Why is it getting all this buzz now that it wasn't last year? Well, let's back it up. Yes, the employee retention credit has actually been around because the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love last year in 2020 since of the PPP, the Paycheck Protection Program. Originally, in 2020, if you got a PPP loan as an employer, you were not eligible for the employee retention credit.
Generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular girl with thick glasses and neglected eyebrows and her hair up in 2020 to the belle of the ball for business owners in 2021. Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Tax Credit And Ppp
Factor, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, however 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 salaries. The federal government does not look too fondly on paying your payroll for you through the PPP and then you declaring a credit versus the taxes you pay the government on those incomes that the government paid 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 require to pick the very best covered duration that will get you full PPP forgiveness but likewise maximize your employee retention credit.
Also, for PPP forgiveness, you desire to fill that payroll pail with as lots of costs as possible that do not count for employee retention credit purposes. For instance, you can't declare the employee retention credit on state joblessness insurance coverage contributions, but state unemployment insurance contributions count toward PPP forgiveness, see? So you 'd desire to dump all your state joblessness insurance contributions on your PPP forgiveness application to leave as much regular incomes as possible to take the employee retention credit on.
This can get extremely technical very quickly and it's very situation specific in terms of 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 simply 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 wages you declared the employee retention credit on, which makes good sense as well, why should the federal government give you a reduction for these wages that they already gave you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply enjoy discussing this stuff, but let's discuss another reason the employee retention credit is more appealing now than it was last year, which is that it's simpler to certify for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to reveal a 50% decline in gross receipts compared to the exact same calendar quarter in 2019.
But in 2021, for a quarter to receive the employee retention credit, you only need to show a 20% reduction in gross invoices compared to the very same calendar quarter in 2019. So this indicates much more businesses will certify. My service, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
I didn't qualify for the 2020 employee retention credit first, because I got very first round of PPP cash and 2nd because my service 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. For 2021, for any quarter, you can elect to use 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 purposes 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 get approved for Q1 2021 based upon Q1 2021's gross receipts, you will also receive Q2 2021 because you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just certify for Q1 and Q3 2021, you also get approved for Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decline in income, you can qualify for the employee retention credit if you were required to totally or partially suspend operations in your company 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 throughout that duration of complete or partial shutdown.
Common example, you own a restaurant, and your guv signed an executive order mentioning that you require to shut down indoor dining. That is an example of a partial shutdown. Not only are more businesses eligible 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 incomes and making more organizations eligible through the 20% decline limit rather than the 50% decline limit, but the 2021 credit is likewise more financially rewarding than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all certified wages for 2020, the employee retention credit was equal to 50% of all certified salaries you paid staff members between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in salaries for that entire period. The optimum 2020 credit per employee was $5,000. Not bad, but that's nothing compared to the 2021 credit because for 2021, the credit amounts to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per staff member ... for that entire period? 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 incomes per employee per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. If you're eligible all 4 quarters, $7,000 times four is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee. That's big. That's a godsend to many company owners today. So you see what I indicate now, right, how the employee retention credit has gone from awful duckling in 2020 to beautiful swan in 2021, right? And by the method, by the way, qualified salaries 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 best 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 stuff, 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 simpler to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, due to the fact that I got first round of PPP cash and second due to the fact that my business 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 business qualifies. Not only are more organizations eligible for the employee retention credit thanks to these new laws, making PPP recipients qualified for the employee retention credit though not on the very same wages and making more businesses eligible through the 20% decline limit rather than the 50% decline limit, however the 2021 credit is also more financially 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 equivalent to 70% of certified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... for that entire time period?
How to Get going
The most effective means is to function with a no-risk, contingency-based price financial savings business. That will certainly negotiate in support of their customers to get the most effective costs feasible for their existing clients. They will certainly examine old invoices for errors getting their clients reimbursements and also tax credits. They can enhance the earnings and total assessment of their customers companies.
Solutions supplied can include:
Dedicated professionals that will certainly translate highly intricate program rules and also will certainly be readily available to address your concerns, including:
How does the PPP loan variable right into the ERC?
What are the distinctions between the 2020 and 2021 programs and just how does it use to your business?
What are aggregation rules for larger, multi-state employers, and also just how do I analyze several states executive orders?
Exactly how do part-time, Union, and also tipped staff members influence the quantity of my refunds?
Detailed assessment regarding your qualification
Comprehensive analysis of your situation
Guidance on the asserting process and also documentation
Certain program experience that a normal certified public accountant or payroll processor could not be well-versed in
Smooth as well as quick end-to-end procedure, from eligibility to declaring and getting reimbursements
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All Set To Obtain Started? Its Simple.
1. Whichever firm you pick to work with will establish whether your organization certifies and gets approvel for the ERC.
2. They will assess your request and calculate the maximum quantity you can receive.
3. Their group overviews you via the asserting procedure, from starting to finish, including correct 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 eligible employers.
You can obtain refunds for 2020 and 2021 after December 31st of this year, into 2022 and 2023. And possibly beyond then as well.
Many businesses have received refunds, as well as others, along with reimbursements, additionally qualified to proceed receiving ERC in every payroll they process to December 31, 2021, at close to 30% of their pay-roll expense.
Some organizations have actually received 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 received a PPP funding. Keep in mind, though, that the ERC will just relate to earnings not used for the PPP.
maintain a 20% decline in gross invoices .
A federal government authority needed full or partial closure of your service throughout 2020 or 2021. This includes your operations being restricted by commerce, failure to travel or limitations of team meetings.
- Gross receipt reduction standards is various for 2020 and 2021, but is measured versus the existing quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority called for partial or complete shutdown of your service throughout 2020 or 2021. This includes your operations being restricted by business, inability to take a trip or limitations of group meetings.
- Gross receipt decrease criteria is various for 2020 as well as 2021, yet is gauged against the present quarter as compared to 2019 pre-COVID amounts.
Do we still qualify if we stayed open during the pandemic?
Yes. To qualify, your company must meet either one of the following criteria:
- Experienced a decline in gross invoices by 20%, or
- Had to change company procedures due to federal government orders
Lots of products are thought about as changes in service procedures, consisting of changes in work duties as well as the purchase of extra safety tools.