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
This is big, a lot of small company owners do not learn about this, or they've heard about it, but they do not understand much about it, even lots of tax experts do not understand the ins and outs of this thing due to the fact that it's brand-new and a great deal of these modificationsthat 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 lucrative now in 2021, more lucrative, much more financially rewarding, in truth now than it was in 2020, 5x more profitable at least. Even if you do not own a company, be sure to share this video with business owners you know, this video might literally be worth 10s of thousands of dollars for them. And if you are a company owner and after you enjoy this video you want to talk with me and a member of my team, who will likewise be either a CPA like myself or an EA, shoot me an email, [email protected], tell me a little about your service and your ballpark year-over-year profits, 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 minimizing your needed 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.
Since that's the things your CPA ought to fret about, I am not going to get into the complexities of that type here or the Form 941 and all the payroll things. In this video I wish to inform you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you informed me about this?" You can be informed and take ownership of your own tax situations, of your service's tax scenario to generate more money circulation in your business and more wealth for yourself.
About Employee Retention Tax Credit And Ppp
Alright, now let's dig into this and let's discuss the employee retention credit or the ERC as some folks like to call it, before I enter into this, I wish to say that nothing in this video is to be taken as legal or tax guidance, this video is for basic informational functions just, yes, I am a CPA and a tax expert, however I am not your CPA nor your tax professional unless you have actually engaged my company as such. Another disclaimer here, for purposes of this video I am assuming that if you're seeing this you are a small company owner, which for employee retention credit functions means one hundred or fewer staff members for purposes of the 2020 credit and five hundred or less employees for functions of the 2021 credit, if you have a business with over five hundred staff members I imagine you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you small company owners who may deal with a local tax specialist who is so neck-deep in tax returns right now due to the fact that the government extended the tax deadline to May 17 or volume is just the nature of their organization 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 business owners in 2021 and why weren't we talking about it in 2020, it's been around considering that then, since 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 since the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love in 2015 in 2020 because of the PPP, the Paycheck Protection Program. Initially, in 2020, if you received a PPP loan as an employer, you were not eligible for the employee retention credit.
However the stimulus expense passed in December, the Consolidated Appropriations Act, along with the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it far more attractive. Generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy girl 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 tell you why, a few factors.
Why Employee Retention Tax Credit And Ppp
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 employees and then turn around and declare the employee retention credit on those earnings. 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 period that will get you full PPP forgiveness but likewise optimize your employee retention credit.
Also, for PPP forgiveness, you desire to fill up that payroll bucket with as lots of costs as possible that do not count for employee retention credit purposes. You can't claim the employee retention credit on state joblessness insurance contributions, however state joblessness insurance coverage contributions count towards PPP forgiveness, see? So you 'd desire to dump 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 really quick and it's extremely scenario specific in terms of enhancing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, however simply understand that you really have to do the math 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 subtract the wages you claimed the employee retention credit on, and that makes good sense as well, why should the government provide you a deduction for these earnings that they already offered you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy speaking about this stuff, however let's talk about another reason the employee retention credit is more appealing now than it was in 2015, and that is that it's much easier to qualify for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you had to reveal a 50% decrease in gross invoices compared to the same calendar quarter in 2019.
But 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 exact same calendar quarter in 2019. So this implies even more services will qualify. My company, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP money and 2nd due to the fact that my company didn't suffer that large 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross invoices, you can compare for functions of identifying 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 qualify for Q2 2021 since you qualified 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 a sufficient decrease in income, you can qualify for the employee retention credit if you were needed to completely or partly suspend operations in your business 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 duration of complete or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Not only 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 very same salaries and making more businesses eligible through the 20% decrease limit rather than the 50% decline threshold, however the 2021 credit is likewise more financially rewarding than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all certified earnings for 2020, the employee retention credit was equivalent to 50% of all qualified earnings you paid staff members between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that entire time period. The optimum 2020 credit per worker was $5,000. Not bad, but that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of qualified salaries per employee 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 wages per employee per quarter, so we're speaking about an optimum credit of $7,000 per employee per quarter. If you're eligible all four quarters, $7,000 times four is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per worker. That's substantial. That's a godsend to numerous company owner right now. You see what I indicate now, right, how the employee retention credit has gone from ugly duckling in 2020 to gorgeous swan in 2021? And by the method, by the method, qualified wages includes 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 pick the finest covered period that will get you full PPP forgiveness however also maximize your employee retention credit.
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 appealing 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 certify for the 2020 employee retention credit initially, since I got first round of PPP cash and 2nd due to the fact that my company 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 qualifies. Not only 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 exact same wages and making more businesses eligible through the 20% decrease limit rather than the 50% decline threshold, but the 2021 credit is also more rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of qualified salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per staff member ... for that whole time duration?
How to Start
The best means is to work with a no-risk, contingency-based price savings firm. That will discuss on part of their customers to obtain the very best costs possible for their existing clients. They will examine old billings for mistakes obtaining for their customers refunds as well as credits. They can increase the earnings and total assessment of their customers companies.
Solutions offered can include:
Committed specialists that will certainly translate very complicated program rules and also will be available to answer your inquiries, including:
How does the PPP lending variable into the ERC?
What are the distinctions in between the 2020 and also 2021 programs as well as just how does it apply to your organization?
What are gathering policies for bigger, multi-state employers, and exactly how do I analyze multiple states executive orders?
How do part-time, Union, and also tipped staff members affect the quantity of my refunds?
Detailed analysis regarding your qualification
Detailed analysis of your claim
Assistance on the claiming procedure as well as documentation
Particular program knowledge that a routine certified public accountant or payroll cpu might not be well-versed in
Quick as well as smooth end-to-end process, from eligibility to claiming and obtaining refunds
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|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
All Set To Begin? Its Simple.
1. Whichever firm you pick to work with will certainly figure out whether your organization qualifies for the ERC.
2. They will examine your claim and calculate the maximum quantity you can get.
3. Their group overviews you through the claiming procedure, from beginning to end, consisting of proper documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 and ends on September 30, 2021, for eligible companies.
You can make an application for refunds for 2020 and 2021 after December 31st of this year, right into 2022 and also 2023. And possibly past then also.
Many companies have received refunds, as well as others, along with reimbursements, likewise certified to proceed receiving ERC in every payroll they process to December 31, 2021, at close to 30% of their payroll expense.
Some services 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 now get the ERC also if they already got a PPP financing. Note, though, that the ERC will only use to incomes not used for the PPP.
Do we still certify if we did not) sustain a 20% decrease in gross receipts .
A government authority called for full or partial closure of your company throughout 2020 or 2021. This includes your operations being restricted by business, lack of ability to take a trip or limitations of team conferences.
- Gross invoice reduction criteria is different for 2020 and also 2021, but is gauged versus the existing quarter as contrasted to 2019 pre-COVID amounts:
- A government authority called for partial or complete shutdown of your company throughout 2020 or 2021. This includes your operations being limited by commerce, failure to take a trip or limitations of group meetings.
- Gross invoice reduction standards is various for 2020 as well as 2021, however is determined against the present quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we stayed open throughout the pandemic?
Yes. To qualify, your organization has to fulfill either among the complying with requirements:
- Experienced a decrease in gross invoices by 20%, or
- Needed to alter company operations as a result of government orders
Several products are thought about as changes in organization procedures, including shifts in task duties and the purchase of added protective tools.