Why Employee Retention Tax Credit And Ppp

Very first reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but 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 earnings. The federal government doesn't look too fondly on paying your payroll for you through the PPP and after that you declaring a credit versus the taxes you pay the federal government on those earnings 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 need to select the finest covered duration that will get you complete PPP forgiveness however likewise maximize your employee retention credit.



Also, for PPP forgiveness, you wish to fill up that payroll pail with as lots of expenses as possible that do not count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance coverage contributions, however state unemployment insurance coverage contributions count toward PPP forgiveness, see? You 'd want to dispose all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much common wages as possible to take the employee retention credit on.

So this can get really technical very fast and it's extremely scenario particular in regards to optimizing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, but just understand that you actually need to do the mathematics when doing your PPP forgiveness to ensure 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 sense too, why should the federal government give you a deduction for these earnings that they already provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this things, however let's discuss another reason that the employee retention credit is more appealing now than it was in 2015, which is that it's simpler to receive the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you had to reveal a 50% decrease in gross invoices compared to the very same calendar quarter in 2019.

However in 2021, for a quarter to receive the employee retention credit, you just require to show a 20% reduction in gross receipts compared to the very same calendar quarter in 2019. So this indicates far more services will qualify. My service, for example, experienced a 26% decrease 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 first, due to the fact that I got first round of PPP money and 2nd because my organization 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 company certifies. For 2021, for any quarter, you can choose 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 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 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 receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Likewise, even if you didn't have an adequate decrease in earnings, you can certify for the employee retention credit if you were required to totally or partially suspend operations in your service 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 complete or partial shutdown.

Common example, you own a restaurant, and your governor signed an executive order specifying that you need to close down indoor dining. That is an example of a partial shutdown. Likewise, not just are more businesses eligible for the employee retention credit thanks to these brand-new laws, making PPP receivers qualified for the employee retention credit though not on the very same salaries and making more organizations eligible through the 20% decline threshold rather than the 50% decline limit, but the 2021 credit is also more profitable than the 2020 credit.

This is since for 2020, the employee retention credit was equal to 50% of all qualified incomes for 2020, the employee retention credit was equal to 50% of all certified incomes you paid staff members in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in incomes for that whole time duration. So the optimum 2020 credit per staff member was $5,000. Not bad, but that's nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that entire period? No. Per quarter. For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in earnings per employee per quarter, so we're talking about an optimum credit of $7,000 per worker per quarter. $7,000 times 4 is $28,000 if you're eligible all 4 quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member. That's substantial. That's a blessing to numerous entrepreneur today. So you see what I imply now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021, right? And by the method, by the method, certified wages consists of employer-paid medical 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 finest covered duration that will get you complete PPP forgiveness but 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 reason 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 qualify for the 2020 employee retention credit first, due to the fact that I got first round of PPP money and second since 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 organization certifies. Not only are more services eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the same wages and making more organizations eligible through the 20% decrease threshold rather than the 50% decline threshold, but the 2021 credit is likewise 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 wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that entire time period?