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.
Exactly How It Works
Even if you don't own a company, be sure to share this video with organization owners you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are an organization owner and after you watch this video you want to talk with me and a member of my team, 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 profits, and let's see if we can get some more cash back in your pocket since you can take this credit against your payroll taxes you pay by minimizing your needed employment tax deposits or you can ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Because that's the stuff your CPA need to worry about, I am not going to get into the complexities of that form here or the Form 941 and all the payroll things. In this video I desire to tell you what you require to understand so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you told me about this?" You can be notified and take ownership of your own tax situations, of your organization's tax scenario to produce more cash flow in your business and more wealth for yourself.
About Employee Retention Qualifications
Alright, now let's dig into this and let's speak about the employee retention credit or the ERC as some folks like to call it, before I get into this, I wish to state that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for basic informational purposes just, yes, I am a tax and a certified public accountant expert, but I am not your CPA nor your tax professional unless you have actually engaged my company as such. Another disclaimer here, for purposes of this video I am presuming that if you're seeing this you are a small company owner, which for employee retention credit purposes implies one hundred or fewer staff members for purposes of the 2020 credit and five hundred or fewer staff members for functions of the 2021 credit, if you have a business with over 5 hundred workers I imagine you have in-house counsel, in-house CPAs who are on top of this things, however I'm here for you little service owners who may deal with a local tax specialist who is so neck-deep in income tax return today because the government extended the tax due date to May 17 or volume is simply the nature of their organization that your tax professional hasn't had the time to dig into the weeds here like I have.
So employee retention credit, why is it so lucrative for entrepreneur in 2021 and why weren't we discussing it in 2020, it's been around ever since, given that the CARES Act? Why is it getting all this buzz now that it wasn't last year? Well, let's back it up. 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 in 2015 in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Initially, in 2020, if you received a PPP loan as a company, you were not eligible for the employee retention credit.
But the stimulus expense passed in December, the Consolidated Appropriations Act, in addition to the American Rescue Plan Act, passed in February 2021, made changes to the ERC making it far more attractive. So basically the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular girl with unkempt eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners in 2021. Why? Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll tell you why, a few reasons.
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?
Just How to Begin
The most effective means is to collaborate with a no-risk, contingency-based expense financial savings business. That will certainly discuss in behalf of their clients to get the finest prices possible for their existing customers. They will examine old billings for errors obtaining for their customers refunds and also credits. They can raise the success and also overall assessment of their clients organizations.
Services offered can include:
Committed experts that will interpret extremely complex program regulations as well as will certainly be available to address your concerns, including:
How does the PPP funding variable right into the ERC?
What are the distinctions in between the 2020 as well as 2021 programs and also exactly how does it use to your company?
What are aggregation policies for bigger, multi-state companies, and also exactly how do I analyze multiple states executive orders?
Just how do part-time, Union, as well as tipped workers impact the quantity of my refunds?
Detailed assessment concerning your qualification
Extensive analysis of your claim
Advice on the claiming process and paperwork
Specific program expertise that a routine CPA or pay-roll cpu could not be well-versed in
Quick and smooth end-to-end process, from qualification to declaring as well as getting reimbursements
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Start? Its Simple.
1. Whichever business you pick to work with will establish whether your organization certifies for the ERC.
2. They will examine your case and compute the optimum quantity you can get.
3. Their team guides you with the declaring process, from starting to finish, including correct 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 qualified employers.
You can get reimbursements for 2020 and also 2021 after December 31st of this year, right into 2022 and 2023. As well as potentially beyond after that as well.
Many services have received reimbursements, as well as others, in addition to refunds, likewise certified to proceed obtaining ERC in every payroll they process to December 31, 2021, at close to 30% of their payroll expense.
Some companies have obtained refunds from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can now get approved for the ERC even if they already received a PPP car loan. Keep in mind, though, that the ERC will only relate to incomes not utilized for the PPP.
maintain a 20% decline in gross invoices .
A federal government authority required partial or complete closure of your service throughout 2020 or 2021. This includes your operations being limited by business, failure to travel or limitations of group meetings.
- Gross receipt reduction standards is different for 2020 as well as 2021, yet is determined against the current quarter as contrasted to 2019 pre-COVID amounts:
- A government authority needed complete or partial closure of your service during 2020 or 2021. This includes your operations being restricted by commerce, inability to take a trip or limitations of group meetings.
- Gross receipt reduction criteria is various for 2020 as well as 2021, but is measured against the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still certify if we stayed open throughout the pandemic?
Yes. To qualify, your business needs to meet either one of the adhering to requirements:
- Experienced a decline in gross invoices by 20%, or
- Needed to transform organization operations due to government orders
Numerous products are taken into consideration as changes in organization procedures, including shifts in job duties and the purchase of extra protective tools.