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 Works
Even if you do not own a company, be sure to share this video with service 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 watch 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 service 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 ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Since that's the things your CPA should stress 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 want to tell you what you need to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you told me about this?" so you can be informed and take ownership of your own tax situations, of your business's tax scenario to create more cash circulation in your organization and more wealth for yourself.
About Employee Retention Tax Credit 2020
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 say that nothing in this video is to be taken as legal or tax advice, this video is for basic informative functions only, yes, I am a CPA and a tax expert, but I am not your CPA nor your tax professional unless you have engaged my company. Another disclaimer here, for purposes of this video I am assuming that if you're watching this you are a small company owner, which for employee retention credit purposes means one hundred or fewer employees for purposes of the 2020 credit and 5 hundred or fewer staff members 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 things, but I'm here for you small company owners who might deal with a regional tax expert who is so neck-deep in tax returns right now since the federal government extended the tax due date to May 17 or volume is just the nature of their service that your tax specialist hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so rewarding for service owners in 2021 and why weren't we talking about it in 2020, it's been around considering that then, because the CARES Act? Yes, the employee retention credit has actually been around given that the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love last year in 2020 due to the fact that of the PPP, the Paycheck Protection Program.
Generally the employee retention credit had a glow-up between 2020 and 2021, it went from the unpopular woman with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for service owners in 2021. Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Tax Credit 2020
Reason, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, but of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your staff members and after that turn around and claim the employee retention credit on those incomes as well. The government does not look too fondly on paying your payroll for you through the PPP and then you claiming a credit against the taxes you pay the government on those earnings that the government spent for you. So 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 need to choose the finest covered duration that will get you complete PPP forgiveness but likewise optimize your employee retention credit.
Likewise, for PPP forgiveness, you want to fill that payroll bucket with as lots of costs as possible that do not count for employee retention credit purposes. You can't declare the employee retention credit on state joblessness insurance contributions, but state joblessness insurance contributions count toward PPP forgiveness, see? You 'd desire to discard all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much normal incomes as possible to take the employee retention credit on.
This can get extremely technical very quickly and it's extremely circumstance specific in terms of enhancing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to dig into all that here, but just know that you truly have to do the mathematics when doing your PPP forgiveness to make sure you're not leaving anything on the table in terms of the employee retention credit. Another thing to note is you can't deduct the earnings you claimed the employee retention credit on, which makes good sense as well, why should the federal government offer you a reduction for these wages that they currently gave you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just like speaking about this things, but let's discuss another reason that the employee retention credit is more appealing now than it was last year, which is that it's much easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you needed to show a 50% reduction in gross invoices compared to the exact same calendar quarter in 2019.
However in 2021, for a quarter to get approved for the employee retention credit, you just require to reveal a 20% decline in gross invoices compared to the exact same calendar quarter in 2019. This suggests far more companies will qualify. My company, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.
I didn't certify for the 2020 employee retention credit first, due to the fact that I got first round of PPP money and 2nd due to the fact that my organization didn't suffer that big 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. For 2021, for any quarter, you can elect to utilize the lookback quarter, implying that, for example, even if your Q1 2021 gross receipts aren't at least 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. Ramification here is that if you qualify for Q1 2021 based upon Q1 2021's gross invoices, you will likewise receive Q2 2021 because you certified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply get approved for Q1 and Q3 2021, you also get approved for Q2 and Q4 based upon the lookback. Even if you didn't have an adequate decline in revenue, you can certify for the employee retention credit if you were required to completely 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 during that duration of complete or partial shutdown.
Typical example, you own a dining establishment, and your governor signed an executive order mentioning that you require to shut down indoor dining. That is an example of a partial shutdown. Also, not only are more companies eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the very same incomes and making more services eligible through the 20% decrease threshold instead of the 50% decline threshold, however the 2021 credit is also more rewarding than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of qualified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per employee ... for that entire time duration? For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in salaries per worker per quarter, so we're talking about a maximum 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 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 full PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply 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 certify for the 2020 employee retention credit first, since I got first round of PPP cash and second since my service didn't suffer that big 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. Not just are more organizations qualified for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the same wages and making more services eligible through the 20% decline threshold rather than the 50% decrease limit, however the 2021 credit is also more lucrative than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per employee ... for that whole time duration?
Just How to Get going
That will certainly bargain on behalf of their clients to obtain the ideal rates possible for their existing customers. They will certainly examine old billings for errors getting their clients reimbursements as well as credits.
Assistance supplied can include:
Devoted specialists that will certainly interpret very complex program regulations and will be available to address your questions, including:
How does the PPP financing factor into the ERC?
What are the distinctions between the 2020 as well as 2021 programs and also exactly how does it put on your company?
What are gathering policies for bigger, multi-state employers, as well as just how do I interpret several states executive orders?
How do part-time, Union, as well as tipped workers affect the amount of my refunds?
Thorough evaluation regarding your eligibility
Comprehensive analysis of your claim
Support on the claiming process as well as paperwork
Certain program proficiency that a regular CPA or payroll processor may not be well-versed in
Quick as well as smooth end-to-end process, from qualification to claiming and also receiving reimbursements
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|Finance Pro Plus
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All Set To Obtain Begun? Its Simple.
1. Whichever company you choose to work with will figure out whether your business qualifies and gets approvel for the ERC.
2. They will certainly examine your request and calculate the optimum quantity you can obtain.
3. Their group overviews you via the declaring process, from starting to finish, including proper documents.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and also ends on September 30, 2021, for qualified businesses.
You can use for reimbursements for 2020 and also 2021 after December 31st of this year, right into 2022 and also 2023. And potentially past then also.
Many businesses have received reimbursements, and others, in addition to reimbursements, likewise qualified to proceed getting ERC in every payroll they refine to December 31, 2021, at close to 30% of their payroll expense.
Some organizations have actually gotten reimbursements from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can currently qualify for the ERC even if they currently obtained a PPP car loan. Note, however, that the ERC will just put on incomes not utilized for the PPP.
Do we still certify if we did not) incur a 20% decline in gross invoices .
A 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 travel or limitations of group meetings.
- Gross receipt reduction standards is various for 2020 as well as 2021, however is measured against the current quarter as compared to 2019 pre-COVID quantities:
- A government authority called for full or partial shutdown of your company throughout 2020 or 2021. This includes your procedures being limited by commerce, inability to travel or restrictions of team meetings.
- Gross invoice decrease standards is various for 2020 and 2021, but is measured versus the existing quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To qualify, your service has to meet either among the adhering to standards:
- Experienced a decrease in gross invoices by 20%, or
- Had to transform service operations because of government orders
Many products are considered as changes in business operations, including changes in task functions as well as the acquisition of additional safety equipment.