Why Employee Retention 2021 Erc Qualifications

Reason, 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 workers and then turn around and claim the employee retention credit on those wages. The government doesn't look too fondly on paying your payroll for you through the PPP and then you claiming a credit against the taxes you pay the federal government on those salaries that the government spent for you. So that makes sense. Now, there's some preparation here. 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 very best covered duration that will get you full PPP forgiveness but also optimize your employee retention credit.



For PPP forgiveness, you want to fill up that payroll pail with as lots of costs as possible that do not count for employee retention credit functions. You can't declare the employee retention credit on state joblessness insurance coverage contributions, but state joblessness insurance contributions count toward PPP forgiveness, see? So you 'd want to dispose all your state joblessness insurance 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 really technical really quick and it's really circumstance particular in terms of optimizing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to dig into all that here, but feel in one's bones that you really 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 subtract the wages you declared the employee retention credit on, and that makes sense also, why should the federal government provide you a reduction for these salaries that they currently provided you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this stuff, but let's discuss another reason the employee retention credit is more attractive now than it was in 2015, which 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 show a 50% decrease in gross receipts compared to the exact same calendar quarter in 2019.

But in 2021, for a quarter to get approved for the employee retention credit, you just require to show a 20% decrease in gross receipts compared to the same calendar quarter in 2019. So this suggests even more services will qualify. My service, for example, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.

So I didn't get approved for the 2020 employee retention credit initially, since I got first round of PPP cash and 2nd due to the fact that my business didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my service qualifies. Likewise, 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. Implication here is that if you receive Q1 2021 based on Q1 2021's gross invoices, you will also qualify 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 generally if you simply get approved for Q1 and Q3 2021, you also qualify for Q2 and Q4 based on the lookback. Also, even if you didn't have an adequate decline in profits, you can get approved for the employee retention credit if you were needed to fully 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 throughout that duration of complete or partial shutdown.

Typical example, you own a dining establishment, and your guv signed an executive order specifying that you require to close down indoor dining. That is an example of a partial shutdown. Not only are more organizations qualified for the employee retention credit thanks to these new laws, making PPP recipients qualified for the employee retention credit though not on the same earnings and making more services eligible through the 20% decline threshold rather than the 50% decrease threshold, but the 2021 credit is also more financially rewarding than the 2020 credit.

This is due to the fact that for 2020, the employee retention credit amounted to 50% of all certified incomes for 2020, the employee retention credit was equivalent to 50% of all certified salaries 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 optimum 2020 credit per employee was $5,000. Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of qualified earnings per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per employee ... for that whole time duration? No. Per quarter. So 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 employee per quarter. $7,000 times four is $28,000 if you're eligible all 4 quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's substantial. That's a godsend to lots of organization owners today. So you see what I mean now, right, how the employee retention credit has gone from awful duckling in 2020 to beautiful swan in 2021, right? And by the way, by the way, certified salaries consists of 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 select the best covered duration that will get you full PPP forgiveness however also maximize 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 appealing now than it was last year, and that is that it's much easier to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP cash and second because my service didn't suffer that big 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service qualifies. Not just are more businesses qualified for the employee retention credit thanks to these new laws, making PPP recipients 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% decrease threshold, but the 2021 credit is also more rewarding than the 2020 credit.

Not bad, but that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of certified earnings per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per staff member ... for that whole time duration?