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 Functions
This is huge, a lot of small company owners don't learn about this, or they've become aware of it, however they do not know much about it, even lots of tax professionals do not know the ins and outs of this thing due to the fact that it's brand-new and a great deal of these modificationsthat are helpful to company owner took place in the middle of tax season. So in this video I'm going to go into the employee retention credit, why it's so financially rewarding now in 2021, more rewarding, much more lucrative, in fact now than it was in 2020, 5x more financially rewarding a minimum of. So even if you do not own an organization, be sure to share this video with company owner you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are a company owner and after you view this video you wish 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 email, [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 due to the fact that you can take this credit versus your payroll taxes you pay by decreasing your required work tax deposits or you can request an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
I am not going to get into the intricacies of that type here or the Form 941 and all the payroll stuff since that's the things your CPA ought to worry about. In this video I desire to tell you what you require to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why haven't you told me about this?" so you can be notified and take ownership of your own tax circumstances, of your business's tax scenario to create more capital in your company and more wealth on your own.
About Employee Retention Tax Credit 2020
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, before I get into this, I want to say that nothing in this video is to be taken as legal or tax suggestions, this video is for general informational functions only, yes, I am a CPA and a tax professional, but 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 assuming that if you're enjoying this you are a small service owner, which for employee retention credit purposes indicates one hundred or fewer workers for purposes of the 2020 credit and five hundred or fewer employees for functions of the 2021 credit, if you have a company with over five hundred employees I picture you have in-house counsel, in-house CPAs who are on top of this things, but I'm here for you little organization owners who may work with a regional tax professional who is so neck-deep in tax returns today due to the fact that the government extended the tax due date to May 17 or volume is just the nature of their service that your tax specialist hasn't had the time to go into the weeds here like I have.
So employee retention credit, why is it so financially rewarding for entrepreneur in 2021 and why weren't we speaking about it in 2020, it's been around ever since, considering that the CARES Act? Why is it getting all this buzz now that it wasn't in 2015? Well, let's back it up. Yes, the employee retention credit has been around given that the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love last year 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 qualified for the employee retention credit.
The stimulus expense passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it much more attractive. So essentially the employee retention credit had a glow-up between 2020 and 2021, it went from the unpopular lady with thick glasses and neglected eyebrows and her hair up in 2020 to the belle of the ball for entrepreneur 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 Tax Credit 2020
Reason, the employee retention credit for both 2020 and 2021 is now available to PPP recipients, however 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 wages. 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 also maximize your employee retention credit.
Also, for PPP forgiveness, you want to fill that payroll pail with as many expenses as possible that do not count for employee retention credit purposes. For example, you can't declare the employee retention credit on state joblessness insurance coverage contributions, however state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd desire to discard all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much ordinary salaries as possible to take the employee retention credit on.
Another thing to note is you can't deduct the wages you claimed the employee retention credit on, and that makes sense as well, why should the government provide you a deduction for these earnings that they already provided you a credit for? 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 appealing now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021.
However in 2021, for a quarter to get approved for the employee retention credit, you just need to show a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. This means far more organizations will certify. My service, for instance, 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 get approved for the 2020 employee retention credit first, since I got preliminary of PPP cash and 2nd since my organization didn't suffer that big 50% decrease needed to get approved for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my business certifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, implying that, for instance, even if your Q1 2021 gross receipts 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. Ramification here is that if you certify for Q1 2021 based on Q1 2021's gross receipts, you will also get approved for Q2 2021 because you qualified 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 receive Q2 and Q4 based upon the lookback. Likewise, even if you didn't have a sufficient decrease in revenue, you can receive the employee retention credit if you were needed to completely or partly suspend operations in your company during 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 duration of partial or complete shutdown.
Common 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. Not only are more businesses 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 incomes and making more businesses eligible through the 20% decrease limit rather than the 50% decrease threshold, however the 2021 credit is likewise 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 equal to 70% of certified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per worker ... for that entire time period? For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in wages per staff member per quarter, so we're talking about a maximum credit of $7,000 per employee per quarter. That's right, folks, the optimum 2021 employee retention credit is $28,000 per worker.
If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you need to select the best covered duration that will get you full PPP forgiveness but likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just enjoy 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 qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, since I got first round of PPP cash and second because my business didn't suffer that large 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. Not just are more organizations qualified for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the same incomes and making more businesses eligible through the 20% decrease threshold rather than the 50% decrease threshold, however the 2021 credit is also more financially rewarding 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 qualified wages per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... for that whole time duration?
How to Begin
The most effective method is to deal with a no-risk, contingency-based expense financial savings firm. That will work out in support of their clients to obtain the best costs feasible for their existing customers. They will certainly investigate old invoices for mistakes getting their clients refunds as well as credits. They can enhance the profitability and also general evaluation of their clients companies.
Solutions offered can include:
Devoted professionals that will translate highly complicated program rules and also will certainly be offered to answer your questions, including:
Just how does the PPP funding factor into the ERC?
What are the distinctions between the 2020 and 2021 programs and also just how does it relate to your company?
What are gathering regulations for larger, multi-state employers, as well as how do I interpret numerous states executive orders?
Just how do part-time, Union, and tipped employees affect the amount of my refunds?
Thorough evaluation regarding your qualification
Thorough evaluation of your claim
Support on the claiming process and also documentation
Certain program expertise that a regular certified public accountant or pay-roll processor may not be well-versed in
Smooth and quick end-to-end process, from qualification to claiming as well as obtaining refunds
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Get Going? Its Simple.
1. Whichever firm you select to work with will establish whether your service qualifies for the ERC.
2. They will certainly examine your claim and also compute the optimum quantity you can receive.
3. Their team overviews you through the claiming process, from starting to end, consisting of appropriate documents.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 and also finishes on September 30, 2021, for eligible businesses.
You can obtain refunds for 2020 and 2021 after December 31st of this year, into 2022 and also 2023. And also potentially beyond then also.
Many services have received refunds, as well as others, along with reimbursements, likewise qualified to continue obtaining ERC in every payroll they process to December 31, 2021, at around 30% of their payroll cost.
Some companies have actually obtained refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently get approved for the ERC also if they already received a PPP financing. Keep in mind, however, that the ERC will just put on incomes not used for the PPP.
Do we still qualify if we did not sustain a 20% decline in gross invoices .
A federal government authority required full or partial shutdown of your business during 2020 or 2021. This includes your operations being restricted by commerce, inability to take a trip or constraints of team meetings.
- Gross receipt reduction requirements is different for 2020 and 2021, however is gauged versus the current quarter as compared to 2019 pre-COVID amounts:
- A federal government authority required partial or complete shutdown of your business throughout 2020 or 2021. This includes your procedures being limited by commerce, inability to travel or constraints of team meetings.
- Gross receipt reduction criteria is various for 2020 as well as 2021, however is measured versus the current quarter as compared to 2019 pre-COVID quantities.
Do we still qualify if we remained open throughout the pandemic?
Yes. To qualify, your service must satisfy either among the adhering to standards:
- Experienced a decline in gross invoices by 20%, or
- Had to transform service operations as a result of federal government orders
Lots of products are thought about as changes in company procedures, consisting of changes in task functions and also the acquisition of added protective tools.