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.
Just how It Works
Even if you do not own a business, be sure to share this video with business owners you understand, this video might literally be worth 10s of thousands of dollars for them. And if you are a business 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 organization and your ballpark year-over-year revenue, and let's see if we can get some more cash back in your pocket because you can take this credit against your payroll taxes you pay by minimizing your required employment tax deposits or you can ask for an advance payment of the credit utilizing 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 form here or the Form 941 and all the payroll stuff. In this video I want to inform you what you need to understand so you can go to your CPA and say, "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 circumstances, of your business's tax scenario to generate more money flow in your business and more wealth for yourself.
About Employee Retention Tax Credit Reinstatement Act
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 desire to state that nothing in this video is to be taken as legal or tax recommendations, this video is for general informative purposes only, 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. Another disclaimer here, for functions of this video I am presuming that if you're enjoying this you are a small business owner, which for employee retention credit functions implies one hundred or fewer staff members for functions of the 2020 credit and five hundred or fewer staff members for functions of the 2021 credit, if you have a business with over five hundred employees I imagine you have in-house counsel, in-house CPAs who are on top of this stuff, but I'm here for you small organization owners who might deal with a regional tax specialist who is so neck-deep in income tax return right now because 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 go into the weeds here like I have.
Employee retention credit, why is it so rewarding for company owners in 2021 and why weren't we talking about it in 2020, it's been around given that then, given that the CARES Act? Yes, the employee retention credit has actually been around since the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love last year in 2020 because of the PPP, the Paycheck Protection Program.
Essentially the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy lady with thick glasses and neglected eyebrows and her hair up in 2020 to the belle of the ball for service owners in 2021. Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Tax Credit Reinstatement Act
Reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but 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 incomes. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to choose the finest covered period that will get you complete PPP forgiveness however likewise optimize your employee retention credit.
Likewise, for PPP forgiveness, you wish to fill that payroll pail with as lots of expenses as possible that do not count for employee retention credit purposes. For instance, you can't claim the employee retention credit on state joblessness insurance contributions, but state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd wish to discard all your state joblessness insurance contributions on your PPP forgiveness application to leave as much regular wages as possible to take the employee retention credit on.
This can get really technical very quickly and it's extremely situation particular 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 understand that you actually 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, which makes good sense too, why should the federal government provide you a reduction for these earnings that they currently provided you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just like talking about this things, however let's talk about another reason that the employee retention credit is more attractive now than it was in 2015, and that is that it's simpler to get approved for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to reveal a 50% decrease in gross invoices compared to the exact same calendar quarter in 2019.
But in 2021, for a quarter to receive the employee retention credit, you just require to reveal a 20% decline in gross invoices compared to the same calendar quarter in 2019. So this suggests far more organizations will qualify. My company, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
So I didn't qualify for the 2020 employee retention credit initially, due to the fact that I got preliminary of PPP money and second because my service didn't suffer that big 50% decrease required to receive the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my service certifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, meaning 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 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 qualify for Q1 2021 based upon Q1 2021's gross invoices, you will also get approved for Q2 2021 because you certified in the lookback quarter of Q1 2021.
Exact same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply certify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Even if you didn't have an adequate decline in earnings, you can qualify for the employee retention credit if you were needed to totally or partially suspend operations in your organization throughout any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are qualified 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 specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Also, 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% decline limit rather than the 50% decrease limit, however the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified earnings per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... 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 employee 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 need to choose the best covered duration that will get you full PPP forgiveness however likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just like talking about this things, but 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, because 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 just are more businesses qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the very same earnings and making more companies eligible through the 20% decrease threshold rather than the 50% decrease limit, but the 2021 credit is also more financially rewarding than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of qualified wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per staff member ... for that entire time duration?
Exactly How to Start
The most effective way is to deal with a no-risk, contingency-based cost financial savings company. That will bargain on part of their customers to obtain the most effective costs feasible for their existing customers. They will certainly audit old invoices for mistakes getting their clients refunds and also tax credits. They can boost the success as well as overall assessment of their customers companies.
Assistance offered can include:
Devoted professionals that will certainly analyze very intricate program rules and also will certainly be readily available to answer your concerns, including:
How does the PPP financing element into the ERC?
What are the differences in between the 2020 as well as 2021 programs and also just how does it put on your organization?
What are aggregation rules for bigger, multi-state employers, and exactly how do I translate several states executive orders?
Exactly how do part-time, Union, as well as tipped staff members affect the amount of my reimbursements?
Detailed assessment concerning your qualification
Extensive evaluation of your case
Support on the claiming procedure and also documentation
Specific program knowledge that a regular certified public accountant or payroll cpu may not be well-versed in
Quick as well as smooth end-to-end procedure, from eligibility to claiming and getting reimbursements
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|Finance Pro Plus
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All Set To Get Going? Its Simple.
1. Whichever company you choose to work with will figure out whether your business qualifies for the ERC.
2. They will certainly examine your case and calculate the maximum quantity you can obtain.
3. Their group guides you with the claiming procedure, from beginning to end, including proper documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 and right on September 30, 2021, for eligible organizations.
You can apply for refunds for 2020 as well as 2021 after December 31st of this year, right into 2022 as well as 2023. And possibly past then as well.
Many businesses have received reimbursements, as well as others, along with refunds, also certified to continue obtaining ERC in every payroll they process to December 31, 2021, at around 30% of their pay-roll cost.
Some organizations have received refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can currently receive the ERC even if they already obtained a PPP funding. Keep in mind, though, that the ERC will just relate to salaries not utilized for the PPP.
Do we still certify if we did not sustain a 20% decrease in gross receipts .
A federal government authority needed partial or complete closure of your business during 2020 or 2021. This includes your operations being restricted by commerce, failure to travel or constraints of team conferences.
- Gross receipt reduction criteria is different for 2020 and also 2021, yet is determined against the existing quarter as contrasted to 2019 pre-COVID quantities:
- A government authority called for partial or full closure of your service during 2020 or 2021. This includes your procedures being restricted by commerce, failure to take a trip or limitations of team conferences.
- Gross receipt reduction requirements is different for 2020 as well as 2021, yet 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 certify, your company must satisfy either among the complying with requirements:
- Experienced a decline in gross invoices by 20%, or
- Needed to change business procedures due to government orders
Lots of items are taken into consideration as modifications in business operations, including shifts in task roles and also the acquisition of extra safety equipment.