Exactly How It Functions
Even if you do not own a business, be sure to share this video with business owners you know, this video could literally be worth tens 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 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 service 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 versus your payroll taxes you pay by lowering your required work tax deposits or you can request an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
I am not going to get into the intricacies of that type here or the Form 941 and all the payroll things because that's the stuff your CPA must stress about. In this video I wish to inform you what you need to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why haven't you informed me about this?" You can be informed and take ownership of your own tax circumstances, of your service's tax situation to generate more cash flow in your company and more wealth for yourself.
Why Employee Retention Credit Under The Cares Act
Very first factor, 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 then turn around and declare the employee retention credit on those salaries. The federal government doesn't look too fondly on paying your payroll for you through the PPP and then you claiming a credit against the taxes you pay the federal government on those earnings that the federal government paid for you. That makes 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 select the best covered duration that will get you complete PPP forgiveness but also optimize your employee retention credit.
Likewise, for PPP forgiveness, you want to fill up that payroll container with as numerous expenses as possible that do not count for employee retention credit functions. For example, 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 desire to discard all your state joblessness insurance contributions on your PPP forgiveness application to leave as much common incomes 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 offer you a reduction for these earnings that they already gave you a credit for? Alright, sorry for getting a little sidetracked there, I simply love talking about this stuff, 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 certify for the employee retention credit in 2021.
In 2021, for a quarter to certify for the employee retention credit, you only require to reveal a 20% decrease in gross invoices compared to the same calendar quarter in 2019. This indicates far more services will qualify. My business, for example, experienced a 26% decrease in gross receipts, 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 first, due to the fact that I got preliminary of PPP money and second since my company didn't suffer that big 50% decline needed to get approved for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my business qualifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, implying that, for example, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, you can compare for purposes 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 since you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you just certify for Q1 and Q3 2021, you likewise certify for Q2 and Q4 based upon the lookback. Likewise, even if you didn't have an adequate decline in revenue, you can receive the employee retention credit if you were needed to fully or partially suspend operations in your company during 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 partial or full shutdown.
Typical example, you own a restaurant, and your governor signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Also, not just are more businesses 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 organizations eligible through the 20% decline limit rather than the 50% decrease threshold, but the 2021 credit is also more lucrative than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit amounted to 50% of all certified earnings for 2020, the employee retention credit amounted to 50% of all certified incomes you paid workers in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that entire period. The maximum 2020 credit per employee 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 earnings per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per staff member ... for that whole time duration? No. Per quarter. So 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 worker per quarter, so we're speaking about a maximum credit of $7,000 per staff member per quarter. If you're eligible all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's substantial. That's a blessing to many entrepreneur right now. 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, 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 period that will get you complete PPP forgiveness but also optimize 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 appealing now than it was last year, and that is that it's simpler to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, since I got very first round of PPP money and 2nd since my service 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 service certifies. Not only are more businesses qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the same incomes and making more companies eligible through the 20% decrease threshold rather than the 50% decrease threshold, but the 2021 credit is also more rewarding than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified incomes per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that whole time duration?
How to Start
That will certainly discuss on behalf of their clients to get the finest costs feasible for their existing customers. They will examine old invoices for errors getting their clients refunds and credits.
Services supplied can include:
Devoted specialists that will analyze highly complicated program policies and will be offered to answer your concerns, including:
Just how does the PPP lending variable right into the ERC?
What are the distinctions between the 2020 as well as 2021 programs and how does it relate to your company?
What are gathering rules for larger, multi-state companies, as well as exactly how do I analyze several states executive orders?
Just how do part-time, Union, and tipped employees influence the amount of my refunds?
Detailed evaluation regarding your eligibility
Comprehensive analysis of your case
Advice on the asserting procedure and documentation
Details program experience that a routine certified public accountant or pay-roll processor could not be well-versed in
Smooth and also rapid end-to-end procedure, from qualification to claiming and also receiving reimbursements
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Prepared To Get Going? Its Simple.
1. Whichever business you choose to work with will determine whether your business certifies and gets approvel for the ERC.
2. They will certainly analyze your case as well as compute the maximum amount you can obtain.
3. Their team guides you with the declaring process, from starting to finish, consisting of proper documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 as well as ends on September 30, 2021, for qualified employers.
You can make an application for refunds for 2020 and 2021 after December 31st of this year, right into 2022 and 2023. As well as possibly beyond then too.
Many companies have received refunds, and others, in addition to reimbursements, additionally qualified to proceed getting ERC in every payroll they refine to December 31, 2021, at close to 30% of their payroll cost.
Some organizations have received refunds from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently receive the ERC even if they already got a PPP funding. Note, though, that the ERC will just put on earnings not made use of for the PPP.
Do we still certify if we did not) incur a 20% decrease in gross receipts .
A federal government authority needed full or partial closure of your company during 2020 or 2021. This includes your operations being restricted by business, inability to travel or limitations of group conferences.
- Gross receipt reduction standards is various for 2020 as well as 2021, yet is determined against the present quarter as contrasted to 2019 pre-COVID quantities:
- A government authority required full or partial closure of your company during 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to take a trip or constraints of team conferences.
- Gross receipt decrease requirements is different for 2020 as well as 2021, yet is gauged against the present quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we stayed open during the pandemic?
Yes. To certify, your organization has to fulfill either one of the adhering to requirements:
- Experienced a decrease in gross invoices by 20%, or
- Needed to change business operations because of federal government orders
Several things are considered as changes in company procedures, including changes in task duties as well as the purchase of added protective tools.