Why Employee Retention Credit

Very first reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but obviously you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then turn around and declare the employee retention credit on those wages also. The government does not look too fondly on paying your payroll for you through the PPP and after that you claiming a credit versus the taxes you pay the federal government on those earnings that the government spent for you. So that makes good sense. Now, there's some preparation here. If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to pick the very best covered period that will get you full PPP forgiveness but likewise optimize your employee retention credit.



For PPP forgiveness, you want to fill up that payroll pail with as numerous costs as possible that don't count for employee retention credit purposes. For example, you can't claim the employee retention credit on state unemployment insurance coverage contributions, however state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd wish to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much normal wages as possible to take the employee retention credit on.

So this can get really technical very fast and it's really circumstance particular in terms of optimizing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to go into all that here, but simply know 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 regards to the employee retention credit. Another thing to note is you can't subtract the salaries you declared the employee retention credit on, and that makes sense as well, why should the government provide you a reduction for these earnings that they already provided you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this things, however let's speak about another reason that the employee retention credit is more attractive now than it was in 2015, and that is that it's easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to get approved for the employee retention credit, you needed to reveal a 50% decrease in gross invoices compared to the exact same calendar quarter in 2019.

In 2021, for a quarter to certify 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. So this suggests far more organizations will qualify. My organization, for example, experienced a 26% decline 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, due to the fact that I got preliminary of PPP cash and second since my company 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. For 2021, for any quarter, you can elect to use the lookback quarter, indicating that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for purposes of determining eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you get approved for Q1 2021 based on Q1 2021's gross invoices, you will also qualify for Q2 2021 because you certified in the lookback quarter of Q1 2021.

Same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply receive Q1 and Q3 2021, you likewise qualify for Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decline in income, you can certify for the employee retention credit if you were required to fully or partly suspend operations in your organization 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 during that period of partial or complete shutdown.

Typical example, you own a dining establishment, and your governor signed an executive order mentioning that you require to shut down indoor dining. That is an example of a partial shutdown. Also, not just are more companies 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 earnings and making more companies eligible through the 20% decrease limit rather than the 50% decrease limit, but the 2021 credit is also more rewarding than the 2020 credit.

This is because for 2020, the employee retention credit amounted to 50% of all qualified salaries for 2020, the employee retention credit was equivalent to 50% of all qualified incomes you paid employees between March 12, 2020, and December 31, 2020, with a limit of $10,000 in wages for that whole time duration. So the maximum 2020 credit per staff member was $5,000. Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified incomes per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per worker ... for that whole period? 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 incomes per worker 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 4 is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's big. That's a godsend to numerous entrepreneur right now. So you see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to gorgeous swan in 2021, right? And by the method, by the way, certified earnings consists of 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 require to pick the best covered period that will get you complete PPP forgiveness however also optimize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply like talking about this things, however let's talk about another factor why the employee retention credit is more attractive 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 initially, since I got very first round of PPP cash and 2nd because my organization didn't suffer that big 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service certifies. Not just are more businesses eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the exact same salaries and making more services eligible through the 20% decrease limit rather than the 50% decrease limit, however the 2021 credit is also more lucrative than the 2020 credit.

Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified earnings per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... for that entire time period?