Why Employee Retention Credit Under The Cares 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 staff members and then turn around and claim the employee retention credit on those incomes. If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to choose the best covered duration that will get you full PPP forgiveness however likewise optimize your employee retention credit.



For PPP forgiveness, you want to fill up that payroll bucket 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, however state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd wish to dump all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary incomes as possible to take the employee retention credit on.

This can get really technical really fast and it's really situation specific in terms of optimizing 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 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 declared 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 already offered you a credit for? So basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply love talking about this things, but let's discuss another reason the employee retention credit is more attractive now than it was in 2015, which is that it's simpler to receive the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to show a 50% decline in gross invoices compared to the same calendar quarter in 2019.

However in 2021, for a quarter to receive the employee retention credit, you just need to reveal a 20% decrease in gross receipts compared to the very same calendar quarter in 2019. This implies far more companies will qualify. My organization, for example, experienced a 26% decrease in gross receipts, 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 initially, due to the fact that I got very first round of PPP cash and 2nd due to the fact that my service didn't suffer that big 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, suggesting that, for example, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, 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. Ramification here is that if you receive Q1 2021 based on Q1 2021's gross invoices, you will also receive Q2 2021 considering that you certified in the lookback quarter of Q1 2021.

Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply qualify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Also, even if you didn't have an enough decrease in income, you can receive the employee retention credit if you were needed to fully or partly suspend operations in your service throughout 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 period of complete or partial shutdown.

Common example, you own a restaurant, and your governor signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Likewise, not just are more companies eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the very same incomes and making more services eligible through the 20% decrease limit instead of the 50% decrease limit, but the 2021 credit is likewise more rewarding than the 2020 credit.

This is due to the fact that for 2020, the employee retention credit amounted to 50% of all certified salaries for 2020, the employee retention credit was equal to 50% of all certified incomes you paid employees in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in earnings for that entire period. So the maximum 2020 credit per staff member was $5,000. Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit amounts to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per employee ... for that whole time duration? No. Per quarter. For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in incomes per staff member per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. If you're qualified all four quarters, $7,000 times four is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's huge. That's a godsend to many company owners today. You see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to stunning swan in 2021? And by the method, by the way, qualified salaries includes employer-paid medical insurance premiums.


If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you need to pick the finest covered period that will get you complete PPP forgiveness however likewise maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just 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 much easier to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, because I got very first round of PPP cash and 2nd because my service didn't suffer that large 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service qualifies. Not only are more companies qualified for the employee retention credit thanks to these new laws, making PPP recipients qualified for the employee retention credit though not on the exact same wages and making more services eligible through the 20% decline limit rather than the 50% decline limit, but 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 earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per staff member ... for that entire time period?