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?