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.
Exactly How It Functions
Even if you don't own a company, be sure to share this video with organization owners you understand, this video might actually be worth 10s of thousands of dollars for them. And if you are a company owner and after you view this video you desire to talk with me and a member of my group, who will likewise be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your organization and your ballpark year-over-year earnings, and let's see if we can get some more cash back in your pocket since you can take this credit against your payroll taxes you pay by reducing your required 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.
Because that's the stuff your CPA must worry about, I am not going to get into the complexities of that type here or the Form 941 and all the payroll stuff. In this video I wish to inform you what you require to understand so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you informed me about this?" so you can be informed and take ownership of your own tax circumstances, of your service's tax scenario to create more cash flow in your organization and more wealth for yourself.
About Employee Retention Credit 2021
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, before I get into this, I desire to state that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for basic informational purposes only, yes, I am a CPA and a tax expert, but I am not your CPA nor your tax expert unless you have engaged my firm. Another disclaimer here, for purposes of this video I am assuming that if you're enjoying this you are a small company owner, which for employee retention credit functions indicates one hundred or fewer workers for purposes of the 2020 credit and five hundred or less employees for functions of the 2021 credit, if you have a business with over five hundred workers I imagine you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you small business owners who may deal with a regional tax professional who is so neck-deep in tax returns today due to the fact that the government extended the tax deadline to May 17 or volume is just the nature of their organization that your tax specialist hasn't had the time to go into the weeds here like I have.
Employee retention credit, why is it so financially rewarding for business owners in 2021 and why weren't we talking about it in 2020, it's been around because then, because the CARES Act? Yes, the employee retention credit has been around considering that the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love last year in 2020 because of the PPP, the Paycheck Protection Program.
Generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy lady with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners in 2021. Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Credit 2021
Very first reason, the employee retention credit for both 2020 and 2021 is now available to PPP recipients, but naturally 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 salaries as well. The federal government doesn't look too fondly on paying your payroll for you through the PPP and after that you claiming a credit versus the taxes you pay the federal government on those incomes that the federal 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 require to pick the very 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 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, but state joblessness insurance contributions count towards PPP forgiveness, see? You 'd desire to dump all your state unemployment insurance contributions on your PPP forgiveness application to leave as much ordinary earnings as possible to take the employee retention credit on.
Another thing to note is you can't deduct the salaries you declared the employee retention credit on, and that makes sense as well, why should the federal government offer you a reduction for these wages that they currently gave you a credit for? Alright, sorry for getting a little sidetracked there, I simply love talking about this things, but 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 easier to qualify for the employee retention credit in 2021.
But in 2021, for a quarter to receive the employee retention credit, you only require to show a 20% reduction in gross receipts compared to the exact same calendar quarter in 2019. This suggests far more services will certify. My service, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
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 second since my company didn't suffer that large 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Also, for 2021, for any quarter, you can elect to utilize the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, 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 receive Q1 2021 based on Q1 2021's gross receipts, you will also get approved for Q2 2021 given 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 just certify for Q1 and Q3 2021, you likewise qualify for Q2 and Q4 based upon the lookback. Likewise, even if you didn't have a sufficient decline in income, you can get approved for the employee retention credit if you were required to fully 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 qualified for the employee retention credit throughout that duration of partial or complete shutdown.
Typical example, you own a restaurant, and your guv signed an executive order stating that you need to shut down indoor dining. That is an example of a partial shutdown. Not just are more services eligible for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the exact same salaries and making more organizations 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 due to the fact that for 2020, the employee retention credit amounted to 50% of all qualified wages for 2020, the employee retention credit amounted to 50% of all certified wages you paid employees between March 12, 2020, and December 31, 2020, with a limit of $10,000 in earnings for that entire period. The maximum 2020 credit per staff member was $5,000. Not bad, however 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 worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per employee ... 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 earnings per staff member per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. If you're eligible all four quarters, $7,000 times four is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's huge. That's a blessing to lots of company owners right now. 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 way, by the way, qualified incomes includes 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 require to select the best covered duration that will get you complete PPP forgiveness however likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply enjoy talking about this things, but 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 qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got very first round of PPP money and second due to the fact that my business didn't suffer that large 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Not only are more businesses 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 very same earnings and making more businesses eligible through the 20% decline limit rather than the 50% decrease limit, but the 2021 credit is also more profitable than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of qualified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per staff member ... for that entire time period?
Just How to Start
That will certainly work out on part of their clients to get the best costs feasible for their existing clients. They will investigate old invoices for errors obtaining their clients refunds as well as tax credits.
Services provided can include:
Dedicated specialists that will certainly translate highly intricate program policies and also will certainly be readily available to address your questions, including:
Exactly how does the PPP lending factor into the ERC?
What are the distinctions between the 2020 as well as 2021 programs as well as exactly how does it relate to your service?
What are aggregation rules for bigger, multi-state companies, and also just how do I interpret several states executive orders?
Exactly how do part-time, Union, and tipped workers impact the amount of my refunds?
Extensive examination concerning your qualification
Detailed evaluation of your situation
Support on the asserting procedure as well as documents
Specific program expertise that a regular CPA or payroll processor may not be well-versed in
Fast and also smooth end-to-end process, from eligibility to claiming and obtaining reimbursements
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
All Set To Get Begun? Its Simple.
1. Whichever business you select to work with will certainly determine whether your company certifies and gets approvel for the ERC.
2. They will certainly examine your request as well as calculate the optimum quantity you can obtain.
3. Their group overviews you through the asserting process, from starting to end, including appropriate paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and right on September 30, 2021, for qualified organizations.
You can request refunds for 2020 as well as 2021 after December 31st of this year, right into 2022 and 2023. And possibly past then too.
Many services have received refunds, and others, in addition to refunds, also qualified to continue receiving ERC in every pay-roll they process through December 31, 2021, at about 30% of their payroll cost.
Some services have received refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can currently get approved for the ERC also if they currently got a PPP finance. Note, though, that the ERC will just put on salaries not utilized for the PPP.
sustain a 20% decline in gross billings .
A government authority required partial or complete shutdown of your business during 2020 or 2021. This includes your operations being limited by business, lack of ability to travel or constraints of team meetings.
- Gross invoice reduction criteria is various for 2020 and 2021, yet is gauged versus the current quarter as compared to 2019 pre-COVID quantities:
- A federal government authority called for partial or complete closure of your service during 2020 or 2021. This includes your procedures being restricted by business, inability to take a trip or constraints of team meetings.
- Gross invoice reduction criteria is various for 2020 as well as 2021, however is gauged versus the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we continued to be open during the pandemic?
Yes. To qualify, your company should fulfill either one of the adhering to requirements:
- Experienced a decline in gross receipts by 20%, or
- Had to change business operations due to government orders
Numerous products are taken into consideration as changes in organization operations, consisting of shifts in job roles and the purchase of extra safety equipment.