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.
How It Works
This is big, a great deal of small company owners don't understand about this, or they've become aware of it, but they don't understand much about it, even lots of tax specialists don't understand the ins and outs of this thing because it's new and a great deal of these changesthat are advantageous to entrepreneur occurred in the middle of tax season. So in this video I'm going to go into the employee retention credit, why it's so rewarding now in 2021, more lucrative, far more financially rewarding, in fact now than it was in 2020, 5x more rewarding a minimum of. Even if you do not own a company, be sure to share this video with company owners you know, this video could actually be worth tens of thousands of dollars for them. And if you are a business owner and after you watch this video you wish to talk with me and a member of my group, who will also be either a CPA like myself or an EA, shoot me an email, [email protected], inform me a little about your organization and your ballpark year-over-year income, and let's see if we can get some more cash back in your pocket because you can take this credit against your payroll taxes you pay by minimizing your required work 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 must fret about, I am not going to get into the complexities of that form here or the Form 941 and all the payroll stuff. In this video I wish 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 circumstances, of your service's tax circumstance to generate more cash circulation in your organization and more wealth for yourself.
About Employee Retention Credit Irs
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 state that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for general informative functions just, yes, I am a CPA and a tax expert, but I am not your CPA nor your tax expert unless you have engaged my company. Another disclaimer here, for functions of this video I am presuming that if you're viewing this you are a little business owner, which for employee retention credit purposes suggests one hundred or fewer staff members for functions of the 2020 credit and 5 hundred or fewer workers 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 stuff, however I'm here for you small company owners who might deal with a local tax professional who is so neck-deep in tax returns today since the government extended the tax due date to May 17 or volume is just the nature of their service that your tax professional hasn't had the time to go into the weeds here like I have.
Employee retention credit, why is it so financially rewarding for service owners in 2021 and why weren't we talking about it in 2020, it's been around because then, considering that the CARES Act? Yes, the employee retention credit has been around considering that the CARES Act that was passed over a year ago in March 2020, however 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.
Basically the employee retention credit had a glow-up between 2020 and 2021, it went from the nerdy woman with unkempt eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners in 2021. Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Credit Irs
Reason, the employee retention credit for both 2020 and 2021 is now readily 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 workers and then turn around and declare 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 pick the finest covered duration that will get you complete PPP forgiveness however also optimize your employee retention credit.
Also, 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. For instance, you can't claim the employee retention credit on state joblessness insurance contributions, but state unemployment insurance contributions count towards PPP forgiveness, see? You 'd desire to dispose all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary salaries as possible to take the employee retention credit on.
So this can get very technical extremely quick and it's really circumstance particular in regards to enhancing PPP vs. ERC and my firm has tools to figure this stuff out for you, I'm not going to go into all that here, however just understand that you really need 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 wages you claimed the employee retention credit on, which makes good sense as well, why should the government give you a reduction for these salaries that they currently offered you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this stuff, however let's speak about another reason the employee retention credit is more appealing now than it was last year, and that is that it's 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 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 need to show a 20% decrease in gross receipts compared to the exact same calendar quarter in 2019. This means far more services will qualify. My business, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.
I didn't qualify for the 2020 employee retention credit first, since I got very first round of PPP money and 2nd because my company didn't suffer that large 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service qualifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, meaning that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross invoices, 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 receive Q1 2021 based on Q1 2021's gross receipts, you will also certify for Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you just certify for Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based upon the lookback. Even if you didn't have a sufficient decline in profits, you can certify for the employee retention credit if you were required to totally or partially suspend operations in your organization 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 duration of complete or partial shutdown.
Typical example, you own a restaurant, and your guv signed an executive order mentioning that you require to shut down indoor dining. That is an example of a partial shutdown. Not only 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 exact same salaries and making more organizations eligible through the 20% decline limit rather than the 50% decrease limit, but the 2021 credit is also more financially rewarding than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all qualified incomes for 2020, the employee retention credit was equivalent to 50% of all certified wages you paid workers between March 12, 2020, and December 31, 2020, with a limit of $10,000 in wages for that whole period. The maximum 2020 credit per staff member was $5,000. Okay, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of certified earnings per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per worker ... 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 incomes per employee per quarter, so we're talking about an optimum credit of $7,000 per employee per quarter. If you're qualified all 4 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 today. You see what I suggest now, right, how the employee retention credit has gone from ugly duckling in 2020 to stunning swan in 2021? And by the way, by the way, certified wages includes employer-paid health 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 select the best covered period that will get you full PPP forgiveness however likewise maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this things, but 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 much easier to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, due to the fact that I got first round of PPP cash and 2nd due to the fact that my organization 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 business certifies. Not only are more businesses qualified 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 earnings 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 since for 2021, the credit is equal to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per employee ... for that entire time period?
How to Get going
The most effective way is to collaborate with a no-risk, contingency-based price financial savings firm. That will discuss in support of their customers to obtain the most effective costs feasible for their existing customers. They will examine old invoices for errors getting their clients reimbursements as well as credits. They can boost the productivity as well as overall assessment of their clients companies.
Assistance supplied can include:
Dedicated professionals that will certainly translate extremely intricate program regulations and will be readily available to address your questions, including:
How does the PPP finance variable into the ERC?
What are the distinctions in between the 2020 and also 2021 programs as well as exactly how does it apply to your service?
What are aggregation policies for larger, multi-state employers, and exactly how do I translate multiple states executive orders?
Exactly how do part-time, Union, as well as tipped employees impact the amount of my reimbursements?
Thorough analysis regarding your eligibility
Thorough evaluation of your claim
Support on the claiming process and documentation
Particular program proficiency that a routine CPA or pay-roll cpu could not be well-versed in
Quick as well as smooth end-to-end process, from eligibility to declaring and also getting refunds
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All Set To Get Going? Its Simple.
1. Whichever business you pick to work with will certainly figure out whether your company qualifies and gets approvel for the ERC.
2. They will examine your case as well as compute the optimum quantity you can receive.
3. Their team guides you via the declaring process, from beginning to finish, including correct documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 as well as right on September 30, 2021, for eligible employers.
You can request reimbursements for 2020 as well as 2021 after December 31st of this year, into 2022 and 2023. And possibly past then too.
Many businesses have received reimbursements, as well as others, along with reimbursements, also certified to proceed obtaining ERC in every payroll they refine to December 31, 2021, at close to 30% of their payroll expense.
Some businesses have gotten reimbursements from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now qualify for the ERC also if they already received a PPP car loan. Keep in mind, however, that the ERC will only apply to salaries not used for the PPP.
Do we still qualify if we did not) sustain a 20% decrease in gross receipts .
A federal government authority required partial or complete closure of your organization throughout 2020 or 2021. This includes your operations being limited by commerce, inability to take a trip or limitations of group conferences.
- Gross receipt reduction requirements is various for 2020 as well as 2021, yet is gauged versus the current quarter as contrasted to 2019 pre-COVID quantities:
- A federal government authority called for complete or partial closure of your organization throughout 2020 or 2021. This includes your operations being limited by business, failure to travel or constraints of team conferences.
- Gross invoice reduction standards is different for 2020 and 2021, however is gauged against the existing quarter as compared to 2019 pre-COVID amounts.
Do we still qualify if we remained open throughout the pandemic?
Yes. To certify, your company has to fulfill either one of the following requirements:
- Experienced a decrease in gross receipts by 20%, or
- Had to change business operations because of government orders
Several products are considered as adjustments in business operations, consisting of changes in work duties and also the acquisition of added protective tools.