Why Employee Retention Tax Credit Reinstatement Act

Very first reason, 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 staff members and after that reverse and declare the employee retention credit on those incomes as well. The government does not look too fondly on paying your payroll for you through the PPP and then you claiming a credit versus the taxes you pay the federal government on those wages that the government spent for you. 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 choose the finest covered duration that will get you complete PPP forgiveness but also optimize your employee retention credit.



Likewise, for PPP forgiveness, you want to fill that payroll bucket with as many costs as possible that don't count for employee retention credit purposes. For instance, you can't declare the employee retention credit on state unemployment insurance contributions, but state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd want to dispose all your state joblessness insurance contributions on your PPP forgiveness application to leave as much normal salaries as possible to take the employee retention credit on.

So this can get extremely technical really fast and it's extremely situation particular in terms of enhancing 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 feel in one's bones that you really need to do the mathematics when doing your PPP forgiveness to make sure you're not leaving anything on the table in regards to the employee retention credit. Another thing to note is you can't subtract the earnings you claimed the employee retention credit on, and that makes sense too, why should the government offer you a reduction for these incomes that they already offered you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply love discussing this things, however let's discuss another reason the employee retention credit is more attractive now than it was last year, which is that it's simpler to get approved for the employee retention credit in 2021. In 2020, for a quarter to certify for the employee retention credit, you had to reveal a 50% decline in gross receipts compared to the very same calendar quarter in 2019.

But in 2021, for a quarter to receive the employee retention credit, you just require to reveal a 20% decline in gross receipts compared to the same calendar quarter in 2019. So this means much more services will certify. My service, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.

So I didn't get approved for the 2020 employee retention credit initially, due to the fact that I got preliminary of PPP money and 2nd since my company didn't suffer that big 50% decline needed 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 elect to utilize the lookback quarter, suggesting 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 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 qualify for Q1 2021 based on Q1 2021's gross invoices, you will likewise receive Q2 2021 because you certified in the lookback quarter of Q1 2021.

Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply receive Q1 and Q3 2021, you also qualify for Q2 and Q4 based on the lookback. Likewise, even if you didn't have an enough decline in revenue, you can get approved for the employee retention credit if you were needed 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 qualified for the employee retention credit throughout that duration of partial or full shutdown.

Typical example, you own a restaurant, and your guv signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Not just are more businesses 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 organizations eligible through the 20% decline limit rather than the 50% decline threshold, however the 2021 credit is likewise more rewarding than the 2020 credit.

This is due to the fact that for 2020, the employee retention credit was equivalent to 50% of all certified incomes for 2020, the employee retention credit was equivalent to 50% of all certified wages you paid workers in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in earnings for that entire time duration. The maximum 2020 credit per staff member was $5,000. Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of qualified wages per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per staff member ... for that whole 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 qualified all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee. That's substantial. That's a blessing to lots of service owners today. You see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to beautiful swan in 2021? And by the method, by the way, qualified salaries consists of employer-paid health insurance coverage 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 period that will get you full PPP forgiveness however also optimize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just love talking about this things, however 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 very first round of PPP cash and 2nd due to the fact that my company didn't suffer that big 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Not just are more companies 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 salaries and making more services eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is likewise more profitable than the 2020 credit.

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