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 do not own a business, be sure to share this video with business owners you understand, this video could literally be worth 10s of thousands of dollars for them. And if you are an organization owner and after you enjoy 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 email, [email protected], tell me a little about your company and your ballpark year-over-year earnings, and let's see if we can get some more money back in your pocket since you can take this credit versus your payroll taxes you pay by reducing 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.
Because that's the things your CPA must stress about, I am not going to get into the intricacies of that type here or the Form 941 and all the payroll stuff. In this video I desire to tell you what you require to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you told me about this?" You can be informed and take ownership of your own tax situations, of your service's tax situation to create more cash circulation in your business and more wealth for yourself.
About Employee Retention Program
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, prior to I get into this, I want to state that absolutely nothing in this video is to be taken as legal or tax recommendations, this video is for general informational functions just, yes, I am a CPA and a tax professional, but I am not your CPA nor your tax expert unless you have engaged my company. Another disclaimer here, for functions of this video I am assuming that if you're enjoying this you are a small service owner, which for employee retention credit purposes implies one hundred or fewer employees for purposes of the 2020 credit and 5 hundred or less staff members for functions of the 2021 credit, if you have a company with over five hundred staff members I picture you have in-house counsel, in-house CPAs who are on top of this things, but I'm here for you small company owners who may deal with a regional tax professional who is so neck-deep in income tax return right now due to the fact that the federal government extended the tax due date to May 17 or volume is simply the nature of their organization that your tax professional hasn't had the time to go into the weeds here like I have.
So employee retention credit, why is it so financially rewarding for entrepreneur in 2021 and why weren't we speaking about it in 2020, it's been around ever since, considering that the CARES Act? Why is it getting all this buzz now that it wasn't in 2015? Well, let's back it up. Yes, the employee retention credit has actually been around given that the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love in 2015 in 2020 since of the PPP, the Paycheck Protection Program. Initially, in 2020, if you got a PPP loan as an employer, you were not qualified for the employee retention credit.
The stimulus expense passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made changes to the ERC making it much more appealing. Essentially the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy woman with thick glasses and unkempt eyebrows and her hair up in 2020 to the belle of the ball for business owners in 2021. Why? Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll inform you why, a few factors.
Why Employee Retention Program
Very first factor, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, however obviously 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 earnings also. The federal government doesn't look too fondly on paying your payroll for you through the PPP and then 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 preparation 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 choose the very best covered period that will get you full PPP forgiveness but likewise optimize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as many expenses as possible that do not count for employee retention credit purposes. You can't declare the employee retention credit on state unemployment insurance contributions, however state unemployment insurance contributions count towards PPP forgiveness, see? You 'd desire to dispose all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much regular salaries 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 deduction for these earnings that they already offered you a credit for? Alright, sorry for getting a little sidetracked there, I simply love 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 much easier to qualify for the employee retention credit in 2021.
However in 2021, for a quarter to get approved for the employee retention credit, you just need to reveal a 20% decrease in gross invoices compared to the very same calendar quarter in 2019. This indicates far more services will qualify. My business, for example, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.
I didn't qualify for the 2020 employee retention credit first, since I got first round of PPP money and second because my organization didn't suffer that large 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service certifies. Also, for 2021, for any quarter, you can elect to utilize the lookback quarter, meaning 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 receive Q1 2021 based on Q1 2021's gross invoices, you will likewise get approved for Q2 2021 because you certified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decrease in revenue, you can qualify for the employee retention credit if you were required to fully or partly suspend operations in your service 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 complete or partial shutdown.
Common example, you own a dining establishment, and your guv signed an executive order mentioning that you need to shut down indoor dining. That is an example of a partial shutdown. Not only are more services 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 organizations eligible through the 20% decrease threshold rather than the 50% decrease limit, however the 2021 credit is also more financially rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that entire time duration? For 2021 the percentage 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 an optimum credit of $7,000 per employee per quarter. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member.
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 full PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just enjoy talking about this stuff, however let's talk about another reason why the employee retention credit is more appealing now than it was last year, and that is that it's easier to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, since I got first round of PPP money and 2nd because my organization didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. Not only are more services 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 wages and making more services eligible through the 20% decrease limit rather than the 50% decrease threshold, but the 2021 credit is also more lucrative than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of qualified wages per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per employee ... for that entire time duration?
Exactly How to Begin
The best way is to work with a no-risk, contingency-based cost financial savings company. That will discuss in support of their customers to obtain the very best rates possible for their existing clients. They will examine old invoices for mistakes obtaining for their customers refunds and also credits. They can boost the profitability and total appraisal of their customers organizations.
Solutions supplied can include:
Dedicated experts that will certainly interpret extremely intricate program guidelines and also will be available to address your concerns, including:
How does the PPP loan element into the ERC?
What are the differences in between the 2020 as well as 2021 programs as well as exactly how does it use to your company?
What are aggregation rules for larger, multi-state employers, and just how do I translate multiple states executive orders?
How do part-time, Union, and also tipped employees impact the quantity of my reimbursements?
Complete assessment regarding your eligibility
Detailed analysis of your claim
Support on the asserting procedure and also documentation
Certain program expertise that a regular certified public accountant or payroll processor might not be well-versed in
Smooth and fast end-to-end process, from eligibility to claiming as well as getting reimbursements
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Start? Its Simple.
1. Whichever firm you select to work with will figure out whether your business certifies and gets approvel for the ERC.
2. They will examine your request as well as compute the maximum quantity you can receive.
3. Their group guides you through the declaring procedure, from starting to end, including proper documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and right on September 30, 2021, for eligible companies.
You can use for refunds for 2020 and also 2021 after December 31st of this year, into 2022 as well as 2023. As well as possibly beyond then also.
Many companies have received reimbursements, and also others, in enhancement to refunds, also qualified to continue obtaining ERC in every payroll they refine through December 31, 2021, at around 30% of their payroll expense.
Some companies have actually obtained reimbursements 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 qualify for the ERC even if they currently received a PPP loan. Keep in mind, however, that the ERC will only relate to salaries not made use of for the PPP.
maintain a 20% reduction in gross invoices .
A federal government authority called for partial or complete closure of your organization during 2020 or 2021. This includes your operations being restricted by business, inability to take a trip or constraints of group meetings.
- Gross receipt decrease requirements is different for 2020 as well as 2021, yet is measured versus the present quarter as compared to 2019 pre-COVID quantities:
- A government authority called for partial or complete closure of your organization during 2020 or 2021. This includes your operations being restricted by commerce, lack of ability to take a trip or restrictions of group meetings.
- Gross invoice reduction criteria is different for 2020 and also 2021, however is gauged against the present quarter as contrasted to 2019 pre-COVID quantities.
Do we still qualify if we continued to be open throughout the pandemic?
Yes. To qualify, your organization should fulfill either one of the adhering to standards:
- Experienced a decline in gross invoices by 20%, or
- Had to alter business procedures because of federal government orders
Several products are considered as modifications in company procedures, consisting of changes in work roles and the acquisition of added safety tools.