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.
Just how It Functions
This is huge, a great deal of small company owners do not learn about this, or they've become aware of it, but they don't know much about it, even lots of tax professionals do not know the ins and outs of this thing since it's brand-new and a lot of these modificationsthat are advantageous to company owner occurred 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 lucrative, far more lucrative, in fact now than it was in 2020, 5x more lucrative at least. So even if you do not own a company, make certain to share this video with company owners you know, this video could literally be worth 10s of countless dollars for them. And if you are an entrepreneur and after you see this video you desire 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], tell me a little about your service and your ballpark year-over-year profits, 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 minimizing your required 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.
Because that's the things your CPA need to stress about, I am not going to get into the intricacies of that kind here or the Form 941 and all the payroll things. In this video I wish to tell you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you told me about this?" You can be informed and take ownership of your own tax circumstances, of your business's tax situation to produce more cash circulation in your organization and more wealth for yourself.
About Employee Retention Credit Irs
Alright, now let's go into this and let's talk about the employee retention credit or the ERC as some folks like to call it, before I enter into this, I desire to state that absolutely nothing in this video is to be taken as legal or tax guidance, this video is for general educational purposes only, yes, I am a tax and a certified public accountant expert, but I am not your CPA nor your tax professional unless you have engaged my company as such. Another disclaimer here, for purposes of this video I am presuming that if you're enjoying this you are a small company owner, which for employee retention credit purposes suggests one hundred or less employees for functions of the 2020 credit and five hundred or less employees for functions of the 2021 credit, if you have a business with over five hundred workers I imagine 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 work with a regional tax specialist who is so neck-deep in tax returns right now due to the fact that the federal government extended the tax due date to May 17 or volume is simply the nature of their business that your tax expert hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so lucrative for company owners in 2021 and why weren't we talking about it in 2020, it's been around given that then, because the CARES Act? Yes, the employee retention credit has actually been around given that the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love last year in 2020 since of the PPP, the Paycheck Protection Program.
However the stimulus bill passed in December, the Consolidated Appropriations Act, in addition to the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it a lot more appealing. Basically the employee retention credit had a glow-up between 2020 and 2021, it went from the unpopular woman with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners in 2021. Why? Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll inform you why, a couple of reasons.
Why Employee Retention Credit Irs
Reason, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and then turn around and declare the employee retention credit on those earnings. 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 full PPP forgiveness but also optimize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as lots of costs as possible that don't count for employee retention credit functions. For instance, you can't claim the employee retention credit on state joblessness insurance contributions, but state joblessness insurance contributions count toward PPP forgiveness, see? You 'd desire to dump all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much normal incomes as possible to take the employee retention credit on.
Another thing to note is you can't deduct the incomes you declared the employee retention credit on, and that makes sense as well, why should the government give you a deduction for these incomes that they already offered you a credit for? Alright, sorry for getting a little sidetracked there, I simply love talking about this things, however let's talk about another reason why the employee retention credit is more appealing now than it was last year, and that is that it's simpler to qualify for the employee retention credit in 2021.
However in 2021, for a quarter to certify for the employee retention credit, you only need to reveal a 20% reduction in gross receipts compared to the exact same calendar quarter in 2019. So this suggests far more services will qualify. My business, for example, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
I didn't certify for the 2020 employee retention credit first, since I got very first round of PPP cash and second due to the fact that my service 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 organization certifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, implying that, for instance, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, you can compare for purposes of identifying eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Ramification here is that if you receive Q1 2021 based upon Q1 2021's gross receipts, you will also receive Q2 2021 since you qualified 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 get approved for Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decline in earnings, you can qualify for the employee retention credit if you were required to completely or partly suspend operations in your business during 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 period of partial or full shutdown.
Common example, you own a restaurant, and your governor signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Also, not only are more companies qualified 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 salaries and making more services eligible through the 20% decline threshold instead of the 50% decline threshold, but the 2021 credit is likewise more lucrative 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 wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per staff member ... for that entire time period? 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 a maximum credit of $7,000 per staff member per quarter. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee.
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 duration that will get you full PPP forgiveness however likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply enjoy talking about this stuff, however let's talk about another reason why the employee retention credit is more appealing now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021. I didn't certify 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 large 50% decline needed 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 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 organizations eligible through the 20% decrease limit rather than the 50% decline threshold, but the 2021 credit is likewise more profitable 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 qualified earnings per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per worker ... for that entire time period?
Exactly How to Begin
The most effective method is to work with a no-risk, contingency-based price savings company. That will work out on behalf of their customers to get the ideal prices feasible for their existing clients. They will examine old billings for mistakes getting their clients reimbursements and also tax credits. They can increase the profitability as well as overall valuation of their customers organizations.
Solutions offered can include:
Devoted specialists that will analyze extremely complex program guidelines and also will certainly be readily available to address your inquiries, including:
How does the PPP funding factor right into the ERC?
What are the differences between the 2020 and 2021 programs and also exactly how does it relate to your service?
What are gathering regulations for larger, multi-state companies, as well as just how do I translate multiple states executive orders?
How do part-time, Union, as well as tipped staff members impact the amount of my refunds?
Detailed examination concerning your eligibility
Thorough analysis of your claim
Support on the asserting procedure and also documents
Specific program knowledge that a routine certified public accountant or payroll cpu might not be well-versed in
Quick and smooth end-to-end procedure, from qualification to declaring as well as getting reimbursements
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All Set To Begin? Its Simple.
1. Whichever company you select to work with will certainly establish whether your company qualifies for the ERC.
2. They will certainly examine your claim and also compute the maximum amount you can obtain.
3. Their team guides you through the claiming procedure, from starting to finish, including appropriate documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and finishes on September 30, 2021, for eligible businesses.
You can request reimbursements for 2020 as well as 2021 after December 31st of this year, into 2022 as well as 2023. And also possibly beyond after that too.
Many companies have received reimbursements, and also others, in addition to reimbursements, likewise qualified to continue receiving ERC in every payroll they refine through December 31, 2021, at around 30% of their pay-roll expense.
Some services have actually gotten reimbursements from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can currently get the ERC also if they currently received a PPP financing. Note, however, that the ERC will just relate to incomes not utilized for the PPP.
Do we still accredit if we did not incur a 20% decrease in gross billings .
A government authority called for full or partial shutdown of your business during 2020 or 2021. This includes your operations being limited by commerce, lack of ability to take a trip or restrictions of group conferences.
- Gross invoice decrease criteria is different for 2020 as well as 2021, yet is gauged versus the present quarter as contrasted to 2019 pre-COVID amounts:
- A government authority called for full or partial shutdown of your service during 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to travel or limitations of group conferences.
- Gross receipt reduction criteria is various for 2020 and also 2021, however is gauged versus the present quarter as contrasted to 2019 pre-COVID quantities.
Do we still qualify if we remained open throughout the pandemic?
Yes. To qualify, your business must fulfill either one of the complying with criteria:
- Experienced a decrease in gross receipts by 20%, or
- Had to transform company operations as a result of federal government orders
Numerous products are taken into consideration as adjustments in company operations, including changes in work duties as well as the purchase of added safety tools.