Why Employee Retention Erc

Factor, the employee retention credit for both 2020 and 2021 is now available to PPP recipients, but of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and then turn around and declare the employee retention credit on those incomes. The federal government doesn't 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 federal 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 need to choose the very best covered duration that will get you full PPP forgiveness but likewise maximize your employee retention credit.



For PPP forgiveness, you desire to fill up that payroll bucket with as lots of expenses as possible that don't count for employee retention credit purposes. For instance, you can't claim the employee retention credit on state unemployment insurance contributions, but state joblessness insurance contributions count towards PPP forgiveness, see? So you 'd wish to dispose all your state joblessness insurance contributions on your PPP forgiveness application to leave as much regular earnings as possible to take the employee retention credit on.

This can get really technical really quickly and it's really situation particular in terms of optimizing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to dig into all that here, however simply know that you actually have to do the mathematics 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 salaries you declared the employee retention credit on, which makes sense also, why should the government give you a reduction for these earnings that they currently offered you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like speaking about this things, however let's talk about another reason that the employee retention credit is more appealing now than it was last year, which is that it's much easier to qualify for the employee retention credit in 2021. In 2020, for a quarter to certify for the employee retention credit, you had to reveal a 50% reduction in gross invoices compared to the exact same calendar quarter in 2019.

However in 2021, for a quarter to receive the employee retention credit, you only require to reveal a 20% reduction in gross invoices compared to the exact same calendar quarter in 2019. This indicates far more companies will certify. My service, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.

So I didn't certify for the 2020 employee retention credit first, due to the fact that I got preliminary of PPP cash and 2nd due to the fact that my company didn't suffer that big 50% decrease required to receive the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my company qualifies. For 2021, for any quarter, you can elect to utilize 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 functions of figuring out eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Ramification here is that if you get approved for Q1 2021 based on Q1 2021's gross receipts, you will likewise get approved for Q2 2021 given that you qualified in the lookback quarter of Q1 2021.

Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply qualify for Q1 and Q3 2021, you also get approved for Q2 and Q4 based on the lookback. Even if you didn't have an adequate decrease in profits, you can certify for the employee retention credit if you were needed 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 throughout that duration of partial or full shutdown.

Typical example, you own a restaurant, and your guv signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Likewise, not only are more companies qualified for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the exact same wages and making more companies eligible through the 20% decline threshold rather than the 50% decrease limit, but the 2021 credit is likewise more financially 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 certified wages you paid staff members between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that whole period. So the maximum 2020 credit per staff member was $5,000. Okay, however that's nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of qualified earnings per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per employee ... for that entire time 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 staff member per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. If you're qualified all 4 quarters, $7,000 times four is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per worker. That's substantial. That's a blessing to numerous business owners right now. You see what I indicate now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021? And by the way, by the method, certified earnings consists of employer-paid medical insurance premiums.


If you got PPP and you are eligible 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 full PPP forgiveness but also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just like talking about this stuff, 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 simpler to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, because I got first round of PPP cash and 2nd due to the fact that my company 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 service qualifies. Not just are more organizations eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the same earnings and making more organizations eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is likewise more lucrative than the 2020 credit.

Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of qualified incomes per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per worker ... for that whole time period?