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?