Exactly How It Functions
This is huge, a lot of small company owners don't understand about this, or they've found out about it, however they don't understand much about it, even many tax experts do not understand the ins and outs of this thing due to the fact that it's new and a lot of these changesthat are advantageous to company owner occurred in the middle of tax season. So in this video I'm going to go into the employee retention credit, why it's so financially rewarding now in 2021, more lucrative, far more financially rewarding, in truth now than it was in 2020, 5x more lucrative at least. Even if you don't own an organization, be sure to share this video with company owners you understand, this video might literally be worth 10s of thousands of dollars for them. And if you are a company owner and after you see this video you wish 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 profits, and let's see if we can get some more cash back in your pocket because you can take this credit versus your payroll taxes you pay by minimizing your needed employment 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 kind here or the Form 941 and all the payroll things because that's the things your CPA must stress about. In this video I desire to inform you what you require 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?" so you can be notified and take ownership of your own tax scenarios, of your organization's tax circumstance to generate more money flow in your business and more wealth on your own.
Why Employee Retention Credit
First factor, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then reverse and claim the employee retention credit on those wages also. The federal government does not 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 incomes 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 pick the finest covered duration that will get you complete PPP forgiveness but likewise maximize your employee retention credit.
Likewise, for PPP forgiveness, you desire to fill up that payroll container with as lots of costs 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 contributions, however state joblessness insurance 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 normal wages as possible to take the employee retention credit on.
Another thing to note is you can't subtract the salaries you declared the employee retention credit on, and that makes sense as well, why should the federal government offer you a deduction for these wages that they already provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply enjoy 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 much easier to certify for the employee retention credit in 2021.
But in 2021, for a quarter to qualify for the employee retention credit, you just require to show a 20% decrease in gross invoices compared to the same calendar quarter in 2019. So this suggests much more businesses will qualify. My organization, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.
So I didn't get approved for the 2020 employee retention credit first, due to the fact that I got preliminary of PPP money and second due to the fact that my business didn't suffer that big 50% decrease required to get approved for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, implying that, for example, even if your Q1 2021 gross invoices aren't at least 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. Ramification here is that if you get approved for Q1 2021 based upon Q1 2021's gross receipts, you will also get approved for Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply get approved for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based upon the lookback. Even if you didn't have an enough decline in profits, you can qualify for the employee retention credit if you were needed to fully or partly suspend operations in your company during 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 period of full or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying that you require to close down indoor dining. That is an example of a partial shutdown. Also, not just are more companies qualified for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the same incomes and making more companies eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is also more rewarding than the 2020 credit.
This is because for 2020, the employee retention credit was equal to 50% of all certified salaries for 2020, the employee retention credit was equivalent to 50% of all qualified wages you paid workers between March 12, 2020, and December 31, 2020, with a limit of $10,000 in salaries for that entire period. So the optimum 2020 credit per employee was $5,000. Okay, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of certified incomes per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... for that entire period? No. Per quarter. So 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 employee per quarter, so we're talking about an optimum credit of $7,000 per employee per quarter. If you're eligible all 4 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 substantial. That's a blessing to numerous company owner today. You see what I imply now, right, how the employee retention credit has gone from awful duckling in 2020 to gorgeous swan in 2021? And by the way, by the method, qualified earnings consists of employer-paid health insurance 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 but likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this things, but let's talk about another reason 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 first, due to the fact that I got first round of PPP cash and 2nd due to the fact that my service didn't suffer that large 50% decline needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Not only are more services qualified 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 businesses eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of certified earnings per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that whole time period?
Exactly How to Get going
That will work out on behalf of their clients to obtain the best prices feasible for their existing customers. They will certainly investigate old billings for mistakes getting their customers reimbursements as well as credits.
Solutions provided can include:
Committed professionals that will certainly interpret very complicated program rules as well as will be offered to answer your questions, including:
How does the PPP financing element into the ERC?
What are the distinctions between the 2020 and 2021 programs as well as exactly how does it put on your organization?
What are gathering regulations for larger, multi-state companies, as well as just how do I analyze numerous states executive orders?
Just how do part-time, Union, and tipped employees impact the amount of my refunds?
Comprehensive analysis concerning your qualification
Comprehensive analysis of your case
Assistance on the claiming procedure as well as documents
Particular program experience that a regular certified public accountant or payroll cpu might not be well-versed in
Smooth as well as quick end-to-end procedure, from qualification to declaring and also receiving reimbursements
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Prepared To Get Going? Its Simple.
1. Whichever company you pick to work with will certainly determine whether your business qualifies for the ERC.
2. They will assess your request as well as calculate the maximum quantity you can obtain.
3. Their group guides you with the claiming process, from starting to end, consisting of appropriate documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 as well as finishes on September 30, 2021, for qualified employers.
You can make an application for refunds for 2020 and 2021 after December 31st of this year, into 2022 and 2023. And possibly past then too.
Many businesses have received refunds, and others, in enhancement to refunds, additionally qualified to proceed receiving ERC in every pay-roll they refine through December 31, 2021, at around 30% of their payroll cost.
Some services have actually obtained refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can now qualify for the ERC also if they currently obtained a PPP lending. Keep in mind, though, that the ERC will only relate to salaries not used for the PPP.
sustain a 20% decline in gross invoices .
A government authority required partial or full closure of your company throughout 2020 or 2021. This includes your operations being limited by business, lack of ability to travel or restrictions of group meetings.
- Gross invoice reduction standards is various for 2020 and also 2021, yet is determined versus the current quarter as contrasted to 2019 pre-COVID quantities:
- A government authority required partial or full closure of your service during 2020 or 2021. This includes your procedures being limited by commerce, inability to travel or limitations of team conferences.
- Gross receipt reduction requirements is various for 2020 and 2021, yet is gauged versus the current quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we remained open throughout the pandemic?
Yes. To certify, your service must satisfy either one of the following requirements:
- Experienced a decline in gross receipts by 20%, or
- Needed to transform company operations because of federal government orders
Several things are considered as changes in organization operations, including shifts in work roles as well as the acquisition of added protective tools.