Why Employee Retention Tax Credit

Factor, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, 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 wages. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you require to pick the best covered duration that will get you complete PPP forgiveness but likewise maximize your employee retention credit.



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

Another thing to note is you can't subtract the salaries you declared the employee retention credit on, and that makes sense as well, why should the federal government give you a reduction for these salaries that they already gave you a credit for? Alright, sorry for getting a little sidetracked there, I just enjoy talking about this things, but let's talk about another reason why the employee retention credit is more appealing now than it was last year, and that is that it's much easier to certify for the employee retention credit in 2021.

In 2021, for a quarter to qualify 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. So this means far more services will certify. My organization, for example, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.

I didn't qualify for the 2020 employee retention credit initially, due to the fact that I got very first round of PPP money and 2nd due to the fact that my service didn't suffer that big 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross receipts aren't a minimum of 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 receive Q1 2021 based upon Q1 2021's gross receipts, you will likewise receive Q2 2021 considering that you certified in the lookback quarter of Q1 2021.

Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you just receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based upon the lookback. Even if you didn't have a sufficient decline in income, you can certify for the employee retention credit if you were required to completely 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 full or partial shutdown.

Typical example, you own a dining establishment, and your guv signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Not just are more organizations eligible for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the very same incomes and making more organizations eligible through the 20% decline threshold rather than the 50% decline threshold, however the 2021 credit is likewise more profitable than the 2020 credit.

Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of qualified earnings per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per employee ... 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 an optimum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee.


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 finest covered duration that will get you complete PPP forgiveness but also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply enjoy 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 simpler to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, because I got first round of PPP money and second because my business didn't suffer that big 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Not just are more businesses 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 same salaries and making more services eligible through the 20% decline threshold rather than the 50% decline threshold, however the 2021 credit is also more rewarding than the 2020 credit.

Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of qualified salaries per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per staff member ... for that entire time duration?