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?