How It Functions
Even if you don't own a service, be sure to share this video with business owners you know, this video could literally be worth tens of thousands of dollars for them. And if you are a company owner and after you view this video you desire to talk with me and a member of my team, who will likewise be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your business and your ballpark year-over-year earnings, and let's see if we can get some more money 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.
Since that's the stuff your CPA should stress about, I am not going to get into the complexities of that kind here or the Form 941 and all the payroll things. In this video I wish to inform you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you told me about this?" You can be informed and take ownership of your own tax circumstances, of your business's tax scenario to create more money flow in your business and more wealth for yourself.
Why Employee Retention Credit Taxable Income
Factor, the employee retention credit for both 2020 and 2021 is now readily 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 after that turn around and claim the employee retention credit on those wages also. The federal government does not 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 sense. Now, there's some planning 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 best covered period that will get you full PPP forgiveness but likewise optimize your employee retention credit.
Likewise, for PPP forgiveness, you desire to fill up that payroll pail with as numerous expenses as possible that don't count for employee retention credit functions. For example, you can't declare the employee retention credit on state unemployment insurance contributions, however state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd desire to dispose all your state joblessness insurance contributions on your PPP forgiveness application to leave as much common salaries as possible to take the employee retention credit on.
Another thing to note is you can't subtract the salaries you claimed the employee retention credit on, and that makes sense as well, why should the government give you a deduction for these wages that they currently provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply love 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 easier to certify for the employee retention credit in 2021.
But in 2021, for a quarter to certify for the employee retention credit, you only require to reveal a 20% decline in gross receipts compared to the same calendar quarter in 2019. So this implies even more organizations will certify. My organization, for example, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
I didn't certify for the 2020 employee retention credit initially, because I got first round of PPP money and second due to the fact that my organization didn't suffer that large 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, implying that, for instance, even if your Q1 2021 gross invoices aren't a minimum of 20% lower than your Q1 2019 gross invoices, you can compare for functions 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 get approved for Q1 2021 based on Q1 2021's gross invoices, you will likewise certify for Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so generally if you just certify for Q1 and Q3 2021, you also receive Q2 and Q4 based on the lookback. Likewise, even if you didn't have a sufficient decrease in earnings, you can certify for the employee retention credit if you were required to totally or partly suspend operations in your service throughout 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 period of partial or complete shutdown.
Common example, you own a restaurant, and your governor signed an executive order mentioning that you need to close down indoor dining. That is an example of a partial shutdown. Not just are more companies eligible for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the very same earnings and making more businesses eligible through the 20% decrease threshold rather than the 50% decrease threshold, however the 2021 credit is likewise more profitable than the 2020 credit.
This is since for 2020, the employee retention credit was equivalent to 50% of all certified wages for 2020, the employee retention credit was equivalent to 50% of all certified incomes you paid employees in between March 12, 2020, and December 31, 2020, with a limit of $10,000 in salaries for that whole time period. So the optimum 2020 credit per staff member was $5,000. Okay, but that's nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of certified wages per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that entire 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 salaries per employee per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. If you're eligible all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per worker. That's big. That's a godsend to numerous organization owners today. So you see what I mean now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021, right? And by the method, by the way, qualified wages includes employer-paid health insurance coverage 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 select the finest covered duration that will get you full PPP forgiveness however likewise optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just like talking about this stuff, 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 simpler to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, since I got very first round of PPP money and 2nd because my organization didn't suffer that big 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service certifies. Not just are more organizations 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 incomes and making more businesses eligible through the 20% decrease limit rather than the 50% decline limit, however the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per worker ... for that whole time duration?
Just How to Get going
That will certainly negotiate on behalf of their customers to obtain the best prices feasible for their existing customers. They will certainly investigate old billings for errors obtaining their clients reimbursements and tax credits.
Services offered can include:
Dedicated specialists that will analyze extremely complex program regulations as well as will certainly be readily available to answer your questions, including:
Just how does the PPP lending aspect right into the ERC?
What are the differences in between the 2020 as well as 2021 programs and how does it relate to your business?
What are gathering rules for bigger, multi-state companies, and just how do I translate numerous states executive orders?
Just how do part-time, Union, as well as tipped staff members affect the quantity of my reimbursements?
Detailed evaluation regarding your eligibility
Comprehensive analysis of your claim
Support on the claiming process and also paperwork
Particular program expertise that a routine CPA or payroll processor may not be well-versed in
Quick and smooth end-to-end procedure, from eligibility to asserting as well as receiving reimbursements
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Prepared To Start? Its Simple.
1. Whichever business you choose to work with will certainly determine whether your service qualifies for the ERC.
2. They will certainly analyze your request and compute the maximum amount you can obtain.
3. Their team guides you with the asserting procedure, from beginning to finish, consisting of proper documents.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 as well as right on September 30, 2021, for eligible companies.
You can look for reimbursements for 2020 and also 2021 after December 31st of this year, into 2022 and also 2023. As well as potentially past then also.
Many services have received refunds, as well as others, in enhancement to refunds, likewise certified to proceed receiving ERC in every pay-roll they refine to December 31, 2021, at around 30% of their pay-roll expense.
Some companies have actually gotten reimbursements from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can now get the ERC even if they currently obtained a PPP car loan. Keep in mind, though, that the ERC will only put on salaries not made use of for the PPP.
Do we still certify if we did not incur a 20% decrease in gross receipts .
A government authority needed complete or partial closure of your business during 2020 or 2021. This includes your procedures being restricted by business, lack of ability to travel or limitations of team meetings.
- Gross receipt decrease criteria is various for 2020 and also 2021, but is determined versus the current quarter as compared to 2019 pre-COVID amounts:
- A federal government authority called for complete or partial shutdown of your service throughout 2020 or 2021. This includes your procedures being restricted by business, inability to travel or limitations of team conferences.
- Gross receipt reduction standards is various for 2020 and 2021, however is gauged versus the existing quarter as contrasted to 2019 pre-COVID quantities.
Do we still qualify if we stayed open during the pandemic?
Yes. To certify, your organization must fulfill either among the adhering to standards:
- Experienced a decline in gross receipts by 20%, or
- Needed to alter organization procedures because of federal government orders
Lots of items are considered as modifications in service procedures, including shifts in task roles and the acquisition of additional protective equipment.