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.
How It Functions
Even if you don't own an organization, be sure to share this video with organization owners you know, this video could actually be worth tens of thousands of dollars for them. And if you are a company owner and after you see this video you want to talk with me and a member of my team, who will also be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your business and your ballpark year-over-year earnings, and let's see if we can get some more money back in your pocket because you can take this credit against your payroll taxes you pay by decreasing your needed employment tax deposits or you can ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Since that's the stuff your CPA should stress about, I am not going to get into the complexities of that kind here or the Form 941 and all the payroll things. In this video I desire 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 told me about this?" You can be notified and take ownership of your own tax situations, of your business's tax circumstance to generate more cash circulation in your organization and more wealth for yourself.
About Employee Retention Tax Credit 2020
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 want to say that nothing in this video is to be taken as legal or tax suggestions, this video is for basic educational functions just, yes, I am a tax and a cpa expert, but I am not your CPA nor your tax expert unless you have actually engaged my firm. Another disclaimer here, for functions of this video I am presuming that if you're viewing this you are a small company owner, which for employee retention credit purposes indicates one hundred or fewer staff members for functions of the 2020 credit and 5 hundred or less employees for functions of the 2021 credit, if you have a company with over 5 hundred workers I imagine you have in-house counsel, in-house CPAs who are on top of this stuff, but I'm here for you small company owners who might deal with a local tax professional who is so neck-deep in income tax return right now because the federal government extended the tax due date to May 17 or volume is just the nature of their company that your tax professional hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so rewarding for organization owners in 2021 and why weren't we talking about it in 2020, it's been around considering that then, since the CARES Act? Why is it getting all this buzz now that it wasn't in 2015? Well, let's back it up. Yes, the employee retention credit has been around because the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love in 2015 in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Initially, in 2020, if you got a PPP loan as a company, you were not qualified for the employee retention credit.
But the stimulus bill passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it far more appealing. So generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular lady with thick glasses and neglected eyebrows and her hair up in 2020 to the belle of the ball for company owner 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 few factors.
Why Employee Retention Tax Credit 2020
Factor, the employee retention credit for both 2020 and 2021 is now 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 employees 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 require to select the best covered period that will get you full PPP forgiveness but also optimize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll container with as lots of costs as possible that do not count for employee retention credit purposes. You can't declare the employee retention credit on state joblessness insurance contributions, however state joblessness insurance coverage contributions count toward PPP forgiveness, see? You 'd want to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much regular wages as possible to take the employee retention credit on.
Another thing to note is you can't deduct the wages you claimed the employee retention credit on, and that makes sense as well, why should the government provide you a deduction for these wages that they already provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, but 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.
In 2021, for a quarter to qualify for the employee retention credit, you only need to reveal a 20% decline in gross invoices compared to the exact same calendar quarter in 2019. So this suggests even more businesses will certify. My service, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
So I didn't get approved 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 business 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 company certifies. For 2021, for any quarter, you can choose to utilize 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 invoices, you can compare for functions of identifying eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you get approved for Q1 2021 based on Q1 2021's gross receipts, you will likewise qualify for Q2 2021 because you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply get approved for Q1 and Q3 2021, you also qualify for Q2 and Q4 based on the lookback. Also, even if you didn't have an adequate decline in profits, you can certify for the employee retention credit if you were needed to totally or partly suspend operations in your company during any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are qualified for the employee retention credit during that duration of partial or complete shutdown.
Common example, you own a restaurant, and your governor signed an executive order mentioning that you require to shut down indoor dining. That is an example of a partial shutdown. Also, not only are more businesses qualified for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the very same incomes and making more businesses eligible through the 20% decrease threshold instead of the 50% decline threshold, however the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes 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 earnings per worker per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 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 complete PPP forgiveness but likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like 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 much easier to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, because I got first round of PPP cash and 2nd since my company didn't suffer that big 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Not only are more businesses eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the same salaries and making more businesses eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is also more lucrative than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of qualified earnings per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per worker ... for that entire time period?
Exactly How to Start
The best method is to collaborate with a no-risk, contingency-based price financial savings company. That will certainly work out on part of their clients to obtain the very best prices possible for their existing customers. They will certainly examine old invoices for mistakes obtaining for their customers reimbursements as well as tax credits. They can enhance the profitability and total evaluation of their clients companies.
Solutions provided can include:
Dedicated professionals that will interpret highly complex program policies as well as will be available to answer your inquiries, including:
Just how does the PPP loan factor into the ERC?
What are the distinctions in between the 2020 as well as 2021 programs as well as just how does it relate to your service?
What are gathering rules for bigger, multi-state employers, and also how do I interpret numerous states executive orders?
Just how do part-time, Union, as well as tipped employees influence the quantity of my reimbursements?
Detailed evaluation concerning your qualification
Comprehensive analysis of your claim
Assistance on the declaring procedure as well as documentation
Particular program expertise that a regular certified public accountant or pay-roll processor could not be well-versed in
Smooth and also quick end-to-end process, from eligibility to declaring and obtaining reimbursements
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Prepared To Obtain Begun? Its Simple.
1. Whichever business you pick to work with will certainly establish whether your service certifies for the ERC.
2. They will analyze your claim and also calculate the optimum quantity you can get.
3. Their group guides you through the claiming process, from starting to finish, including proper documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 as well as finishes on September 30, 2021, for eligible companies.
You can make an application for refunds for 2020 as well as 2021 after December 31st of this year, into 2022 and 2023. And also potentially beyond after that too.
Many companies have received refunds, and others, in enhancement to reimbursements, additionally qualified to proceed getting ERC in every payroll they refine to December 31, 2021, at around 30% of their pay-roll expense.
Some organizations have received refunds from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, services can now certify for the ERC also if they currently received a PPP finance. Keep in mind, though, that the ERC will only relate to incomes not utilized for the PPP.
maintain a 20% decrease in gross invoices .
A federal government authority needed complete or partial shutdown of your organization throughout 2020 or 2021. This includes your procedures being restricted by business, failure to travel or constraints of group conferences.
- Gross invoice decrease standards is various for 2020 and 2021, yet is measured against the current quarter as contrasted to 2019 pre-COVID amounts:
- A government authority required partial or complete shutdown of your service throughout 2020 or 2021. This includes your operations being limited by commerce, inability to take a trip or limitations of group meetings.
- Gross receipt reduction standards is different for 2020 and also 2021, but is determined against the present quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we stayed open throughout the pandemic?
Yes. To certify, your business should satisfy either one of the following criteria:
- Experienced a decline in gross receipts by 20%, or
- Needed to transform organization operations as a result of federal government orders
Many things are thought about as adjustments in service procedures, including changes in job roles and the acquisition of added safety devices.