Why Employee Retention Tax Credit 2021

Very first factor, the employee retention credit for both 2020 and 2021 is now offered to PPP recipients, however naturally you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then turn around and claim the employee retention credit on those earnings. The government doesn't look too fondly on paying your payroll for you through the PPP and after that you declaring a credit against the taxes you pay the government on those earnings that the federal government paid for you. That makes sense. Now, there's some planning here. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to select the finest covered period that will get you full PPP forgiveness however also optimize your employee retention credit.



Likewise, for PPP forgiveness, you wish to fill that payroll container with as many costs as possible that don't count for employee retention credit functions. You can't declare the employee retention credit on state joblessness insurance contributions, but state unemployment insurance contributions count toward PPP forgiveness, see? You 'd want to dump all your state joblessness insurance contributions on your PPP forgiveness application to leave as much common salaries as possible to take the employee retention credit on.

This can get extremely technical very quickly and it's very circumstance 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 know that you actually 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 subtract the incomes you claimed the employee retention credit on, and that makes good sense as well, why should the federal government offer you a reduction for these earnings that they currently provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy talking about this things, but let's speak about another reason that the employee retention credit is more attractive now than it was in 2015, which is that it's easier to receive the employee retention credit in 2021. In 2020, for a quarter to get approved for the employee retention credit, you had to reveal a 50% decline 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 only require to show a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. This indicates far more services will qualify. My business, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.

So I didn't receive the 2020 employee retention credit initially, because I got preliminary of PPP cash and second since my organization didn't suffer that large 50% decrease required to get approved for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, indicating that, for example, even if your Q1 2021 gross receipts aren't a minimum of 20% lower than your Q1 2019 gross receipts, you can compare for functions of figuring out eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you receive Q1 2021 based upon Q1 2021's gross receipts, you will likewise receive Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.

Same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply get approved for Q1 and Q3 2021, you also qualify for Q2 and Q4 based on the lookback. Also, even if you didn't have an enough decline in revenue, you can get approved for the employee retention credit if you were required to completely 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 eligible for the employee retention credit during that duration of complete or partial shutdown.

Typical example, you own a dining establishment, and your guv signed an executive order stating that you need to shut down indoor dining. That is an example of a partial shutdown. Likewise, not only are more companies eligible for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the very same incomes and making more services eligible through the 20% decrease limit rather than the 50% decrease limit, however the 2021 credit is likewise more rewarding than the 2020 credit.

This is since for 2020, the employee retention credit amounted to 50% of all qualified earnings for 2020, the employee retention credit was equal to 50% of all qualified salaries you paid employees in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in earnings for that whole period. The maximum 2020 credit per staff member was $5,000. Okay, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of qualified wages per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per staff member ... for that entire time duration? 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 earnings per staff member per quarter, so we're discussing a maximum 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 worker. That's huge. That's a godsend to lots of organization owners right now. You see what I imply 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 way, certified earnings consists of employer-paid medical 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 duration that will get you full PPP forgiveness however also optimize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply love 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 easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, because I got very first round of PPP money and 2nd due to the fact that my company 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 business qualifies. Not only are more businesses qualified for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the same incomes and making more businesses eligible through the 20% decline limit rather than the 50% decrease threshold, however the 2021 credit is also more lucrative 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 wages per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that entire time duration?