Exactly How It Functions
Even if you don't own an organization, be sure to share this video with company owners you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are a service owner and after you view this video you want 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 e-mail, [email protected], inform me a little about your service and your ballpark year-over-year income, and let's see if we can get some more money back in your pocket due to the fact that you can take this credit versus your payroll taxes you pay by decreasing 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.
Since that's the things your CPA should stress about, I am not going to get into the intricacies of that kind here or the Form 941 and all the payroll stuff. In this video I want to tell you what you require to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you informed me about this?" so you can be notified and take ownership of your own tax circumstances, of your organization's tax scenario to produce more capital in your service and more wealth for yourself.
Why Employee Retention Credit 2020
Very first factor, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, however obviously 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 wages. The government doesn't look too fondly on paying your payroll for you through the PPP and after that you claiming a credit against the taxes you pay the government on those incomes that the government spent for you. So that makes good sense. Now, there's some planning here. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to pick the best covered period that will get you full PPP forgiveness but likewise optimize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll pail with as many expenses as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance coverage contributions, but state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd want to dispose all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much regular earnings as possible to take the employee retention credit on.
So this can get very technical extremely fast and it's very scenario particular in regards to optimizing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to go into all that here, however just understand that you actually need to do the math when doing your PPP forgiveness to ensure 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 wages you declared the employee retention credit on, which makes good sense too, why should the government offer you a deduction for these salaries that they already offered you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this stuff, however let's discuss another factor why the employee retention credit is more attractive now than it was last year, which is that it's easier to receive the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you needed to reveal a 50% reduction in gross receipts compared to the very same calendar quarter in 2019.
But in 2021, for a quarter to certify for the employee retention credit, you just need to show a 20% reduction in gross receipts compared to the very same calendar quarter in 2019. So this suggests far more organizations will certify. My company, for example, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
So I didn't receive the 2020 employee retention credit initially, since I got first round of PPP cash and 2nd because my company didn't suffer that big 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, suggesting 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 invoices, you will likewise qualify for Q2 2021 because you qualified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply certify for Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Even if you didn't have an adequate decline in profits, you can certify for the employee retention credit if you were required to completely or partly suspend operations in your organization 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 during that period of full or partial shutdown.
Common example, you own a dining establishment, and your guv signed an executive order mentioning that you need to close down indoor dining. That is an example of a partial shutdown. Not only are more organizations qualified 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 incomes and making more services eligible through the 20% decline limit rather than the 50% decline limit, but the 2021 credit is also more profitable than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit amounted to 50% of all certified wages for 2020, the employee retention credit amounted to 50% of all qualified incomes you paid workers in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in earnings for that whole time duration. The maximum 2020 credit per worker was $5,000. Not bad, however that's nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... for that whole time 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 staff member per quarter, so we're talking about a maximum credit of $7,000 per staff member 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 big. That's a godsend to numerous service owners today. So you see what I mean now, right, how the employee retention credit has gone from unsightly duckling in 2020 to gorgeous swan in 2021, right? And by the way, by the method, certified wages consists of employer-paid health insurance premiums.
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 best covered period that will get you full PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, however let's talk about another factor 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 qualify for the 2020 employee retention credit first, because I got first round of PPP money and 2nd since my organization 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 qualifies. Not just are more companies 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 exact same incomes and making more organizations eligible through the 20% decrease limit rather than the 50% decline threshold, but the 2021 credit is also more rewarding 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 equal to 70% of qualified incomes per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per staff member ... for that whole time period?
How to Begin
That will work out on behalf of their customers to obtain the ideal prices possible for their existing customers. They will certainly investigate old invoices for mistakes obtaining their clients reimbursements as well as tax credits.
Services offered can include:
Dedicated professionals that will certainly interpret highly complicated program guidelines as well as will be readily available to answer your questions, including:
How does the PPP financing factor right into the ERC?
What are the differences in between the 2020 as well as 2021 programs and also how does it relate to your business?
What are gathering guidelines for larger, multi-state employers, and just how do I analyze several states executive orders?
Exactly how do part-time, Union, and also tipped staff members impact the amount of my refunds?
Thorough examination concerning your eligibility
Detailed analysis of your claim
Assistance on the claiming procedure and paperwork
Specific program knowledge that a regular CPA or pay-roll processor may not be well-versed in
Smooth and fast end-to-end procedure, from qualification to claiming and receiving refunds
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Get Going? Its Simple.
1. Whichever company you pick to work with will figure out whether your organization certifies for the ERC.
2. They will evaluate your claim and also compute the optimum quantity you can obtain.
3. Their group guides you via the asserting procedure, from starting to end, including proper paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 and right on September 30, 2021, for eligible businesses.
You can get refunds for 2020 and also 2021 after December 31st of this year, right into 2022 and also 2023. And also potentially beyond after that too.
Many businesses have received reimbursements, and also others, along with refunds, likewise qualified to proceed receiving ERC in every pay-roll they refine to December 31, 2021, at around 30% of their pay-roll expense.
Some companies have actually gotten refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently qualify for the ERC even if they currently obtained a PPP finance. Keep in mind, though, that the ERC will only apply to wages not used for the PPP.
Do we still certify if we did not incur a 20% decrease in gross billings .
A government authority required partial or complete shutdown of your company during 2020 or 2021. This includes your operations being restricted by business, lack of ability to travel or constraints of team meetings.
- Gross receipt reduction standards is various for 2020 and also 2021, however is determined versus the current quarter as contrasted to 2019 pre-COVID quantities:
- A federal government authority called for partial or complete shutdown of your business throughout 2020 or 2021. This includes your procedures being restricted by commerce, inability to take a trip or constraints of team meetings.
- Gross invoice reduction requirements is different for 2020 and also 2021, but is measured against the present quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we continued to be open during the pandemic?
Yes. To qualify, your organization must fulfill either among the adhering to requirements:
- Experienced a decline in gross invoices by 20%, or
- Needed to change service operations as a result of government orders
Several things are considered as adjustments in business operations, consisting of shifts in work roles and the purchase of extra safety equipment.