Why Employee Retention Qualifications

Very first factor, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, but naturally 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 declare the employee retention credit on those earnings. The government does not 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 salaries that the federal government spent for you. So that makes sense. Now, there's some planning 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 choose the very best covered period that will get you complete PPP forgiveness however also maximize your employee retention credit.



For PPP forgiveness, you want to fill up that payroll pail with as many expenses as possible that don't count for employee retention credit purposes. You can't declare the employee retention credit on state joblessness insurance coverage contributions, however state unemployment insurance contributions count toward PPP forgiveness, see? So you 'd desire to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary earnings as possible to take the employee retention credit on.

This can get really technical very quickly and it's very situation specific in terms of optimizing 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, but just understand that you truly 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 deduct the earnings you declared the employee retention credit on, and that makes sense also, why should the government give you a deduction for these wages 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, but let's discuss another reason the employee retention credit is more appealing now than it was last year, which is that it's much easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you had to show a 50% decrease in gross invoices compared to the very same calendar quarter in 2019.

However in 2021, for a quarter to get approved for the employee retention credit, you only need to reveal a 20% reduction in gross receipts compared to the very same calendar quarter in 2019. This suggests far more organizations will qualify. My service, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.

So I didn't get approved for the 2020 employee retention credit first, due to the fact that I got first round of PPP cash and second since my organization didn't suffer that big 50% decrease required to get approved for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. Also, for 2021, for any quarter, you can choose to utilize the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross receipts, you can compare for purposes of identifying eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Implication here is that if you certify for Q1 2021 based on Q1 2021's gross receipts, you will likewise certify 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 receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Likewise, even if you didn't have a sufficient decrease in income, you can receive the employee retention credit if you were needed to totally or partially 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 throughout that duration of partial or full shutdown.

Typical example, you own a dining establishment, and your guv signed an executive order mentioning that you need to close down indoor dining. That is an example of a partial shutdown. Likewise, not just 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 same earnings and making more companies eligible through the 20% decline threshold rather than the 50% decline threshold, but the 2021 credit is likewise more financially rewarding than the 2020 credit.

This is due to the fact that for 2020, the employee retention credit was equivalent to 50% of all certified salaries for 2020, the employee retention credit was equal to 50% of all certified earnings you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in incomes for that whole time duration. The maximum 2020 credit per worker was $5,000. Okay, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of certified salaries per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per staff member ... for that whole period? No. Per quarter. For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in salaries per staff member per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. $7,000 times 4 is $28,000 if you're eligible all four quarters. 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 company owner today. So you see what I mean now, right, how the employee retention credit has gone from awful duckling in 2020 to lovely swan in 2021, right? And by the method, by the method, qualified incomes 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 choose the best covered period that will get you complete PPP forgiveness however likewise optimize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply love 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 simpler to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, because I got very first round of PPP money and 2nd because my organization 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 service qualifies. Not just are more organizations eligible for the employee retention credit thanks to these brand-new laws, making PPP receivers qualified for the employee retention credit though not on the very same salaries and making more services eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is also more profitable than the 2020 credit.

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