Why Employee Retention Tax Credit And Ppp

Reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, but of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your staff members and then turn around and claim 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 however likewise maximize your employee retention credit.



Also, for PPP forgiveness, you want to fill that payroll pail with as many costs as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state joblessness insurance coverage contributions, however state unemployment insurance coverage contributions count towards PPP forgiveness, see? So you 'd wish to dispose 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.

So this can get very technical extremely quickly and it's very scenario specific in regards to optimizing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to dig into all that here, however simply know that you truly need to do the math when doing your PPP forgiveness to make certain you're not leaving anything on the table in regards to the employee retention credit. Another thing to note is you can't deduct the incomes you claimed the employee retention credit on, which makes sense as well, why should the federal government offer you a reduction for these wages that they currently gave you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like talking about this things, however let's speak about another reason why the employee retention credit is more attractive now than it was last year, which is that it's much easier to qualify for the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you needed to reveal a 50% decline in gross invoices compared to the same calendar quarter in 2019.

In 2021, for a quarter to certify for the employee retention credit, you only require to reveal a 20% reduction in gross invoices compared to the exact same calendar quarter in 2019. So this indicates even more companies will certify. My service, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.

So I didn't receive the 2020 employee retention credit initially, since I got preliminary of PPP cash and 2nd since my company didn't suffer that large 50% decline required to qualify for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my service qualifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, indicating that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross receipts, 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 get approved for Q1 2021 based upon Q1 2021's gross invoices, you will likewise receive Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.

Very same thing for Q2 to Q3 and Q3 to Q4, so essentially if you simply get approved for Q1 and Q3 2021, you also certify for Q2 and Q4 based on the lookback. Even if you didn't have an adequate decrease in revenue, you can qualify for the employee retention credit if you were required to totally or partly 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 period of full or partial shutdown.

Common example, you own a dining establishment, and your guv signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. Not only are more companies 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 same wages and making more businesses eligible through the 20% decline threshold rather than the 50% decrease threshold, however the 2021 credit is likewise more rewarding than the 2020 credit.

This is since 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 salaries you paid employees in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in salaries for that whole period. So the optimum 2020 credit per staff member was $5,000. Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit amounts to 70% of certified wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... for that entire period? No. Per quarter. So for 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on approximately $10,000 in earnings per staff member per quarter, so we're speaking about an optimum credit of $7,000 per worker per quarter. $7,000 times 4 is $28,000 if you're qualified all four quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's big. That's a godsend to numerous entrepreneur right now. So you see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to stunning swan in 2021, right? And by the method, by the method, qualified wages includes employer-paid health 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 choose the best covered period that will get you full PPP forgiveness however also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just like talking about this stuff, but 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 much easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, due to the fact that I got first round of PPP cash and second because my company didn't suffer that large 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service qualifies. Not just are more services qualified for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the same earnings and making more companies eligible through the 20% decline limit rather than the 50% decline threshold, but the 2021 credit is also more profitable than the 2020 credit.

Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified wages per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per staff member ... for that entire time period?