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.
Exactly How It Works
This is huge, a lot of small company owners don't learn about this, or they've become aware of it, however they don't know much about it, even numerous tax experts don't know the ins and outs of this thing since it's brand-new and a great deal of these changesthat are helpful to organization owners happened in the middle of tax season. So in this video I'm going to go into the employee retention credit, why it's so profitable now in 2021, more profitable, far more profitable, in fact now than it remained in 2020, 5x more financially rewarding a minimum of. So even if you do not own a business, make certain to share this video with company owners you know, this video might actually deserve 10s of countless dollars for them. And if you are a service owner and after you view 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 service and your ballpark year-over-year earnings, and let's see if we can get some more cash back in your pocket because you can take this credit versus your payroll taxes you pay by reducing your needed work tax deposits or you can request an advance payment of the credit utilizing IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Because that's the things your CPA need to stress 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 want to inform you what you need to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you informed me about this?" You can be notified and take ownership of your own tax situations, of your organization's tax situation to produce more money circulation in your company and more wealth for yourself.
About Employee Retention Tax Credit 2020
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, prior to I get into this, I desire to say that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for general informative functions only, yes, I am a CPA and a tax expert, however I am not your CPA nor your tax expert unless you have actually engaged my firm. Another disclaimer here, for purposes of this video I am presuming that if you're viewing this you are a small organization owner, which for employee retention credit purposes indicates one hundred or less employees for purposes of the 2020 credit and 5 hundred or less workers for functions of the 2021 credit, if you have a business with over five hundred staff members I imagine you have in-house counsel, in-house CPAs who are on top of this things, however I'm here for you small company owners who may deal with a local tax professional who is so neck-deep in tax returns today since the federal government extended the tax due date to May 17 or volume is just the nature of their organization that your tax specialist hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so financially rewarding for company owners in 2021 and why weren't we talking about it in 2020, it's been around given that 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, but the employee retention credit didn't get much love last year in 2020 because of the PPP, the Paycheck Protection Program.
Basically the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular woman with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for service 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 Tax Credit 2020
Factor, the employee retention credit for both 2020 and 2021 is now readily 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 staff members and after that turn around and declare the employee retention credit on those incomes also. The federal government doesn't look too fondly on paying your payroll for you through the PPP and then you declaring a credit versus the taxes you pay the government on those wages that the federal government paid for you. 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 require to select the very best covered period that will get you complete PPP forgiveness however likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll container with as lots of expenses as possible that do not count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance contributions, however state joblessness insurance coverage contributions count towards PPP forgiveness, see? You 'd want to discard all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much normal wages as possible to take the employee retention credit on.
This can get really technical extremely quickly and it's very scenario 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, but just understand that you truly have 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 subtract the earnings you declared the employee retention credit on, which makes good sense as well, why should the federal government offer 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 just enjoy discussing this things, but let's discuss another reason the employee retention credit is more appealing now than it was last year, which is that it's much easier to certify 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.
But in 2021, for a quarter to qualify for the employee retention credit, you only require to show a 20% reduction in gross invoices compared to the same calendar quarter in 2019. This means far more services will qualify. My service, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP money and 2nd due to the fact that my company 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 organization qualifies. Likewise, for 2021, for any quarter, you can choose to utilize the lookback quarter, indicating that, for instance, even if your Q1 2021 gross receipts aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for functions 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 qualify for Q1 2021 based upon Q1 2021's gross receipts, you will also get approved for Q2 2021 because 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 get approved for Q2 and Q4 based on the lookback. Likewise, even if you didn't have an enough decrease in income, you can get approved for the employee retention credit if you were needed to completely or partially suspend operations in your service 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 period of complete or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying that you need to close down indoor dining. That is an example of a partial shutdown. Also, not just are more organizations qualified for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the same salaries and making more organizations 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.
Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of qualified earnings per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per staff member ... for that entire time duration? 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 worker per quarter, so we're talking about a maximum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker.
If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to choose the best covered duration that will get you complete PPP forgiveness however also optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just enjoy 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 easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, since I got very first round of PPP cash and 2nd since my service didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Not only are more businesses eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the very same salaries and making more organizations eligible through the 20% decline threshold rather than the 50% decline threshold, but the 2021 credit is also more profitable than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per employee ... for that entire time duration?
Just How to Get going
That will certainly bargain on part of their clients to obtain the best rates possible for their existing clients. They will certainly examine old billings for errors obtaining their customers reimbursements and also tax credits.
Assistance offered can include:
Dedicated specialists that will analyze extremely complex program regulations and also will be available to answer your concerns, including:
Just how does the PPP finance aspect into the ERC?
What are the distinctions between the 2020 as well as 2021 programs and also how does it put on your organization?
What are gathering regulations for bigger, multi-state employers, and how do I translate numerous states executive orders?
Just how do part-time, Union, as well as tipped workers influence the amount of my reimbursements?
Extensive examination regarding your eligibility
Detailed analysis of your situation
Assistance on the asserting process as well as paperwork
Particular program expertise that a normal CPA or pay-roll cpu may not be well-versed in
Quick and also smooth end-to-end procedure, from eligibility to asserting and obtaining reimbursements
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|Finance Pro Plus
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|Equifax Workforce Solutions
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Ready To Begin? Its Simple.
1. Whichever firm you select to work with will certainly figure out whether your service certifies and gets approvel for the ERC.
2. They will certainly examine your claim and compute the maximum quantity you can obtain.
3. Their team overviews you through the declaring process, from beginning to finish, consisting of correct documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and right on September 30, 2021, for eligible companies.
You can request reimbursements for 2020 and 2021 after December 31st of this year, right into 2022 and 2023. And potentially past then also.
Many companies have received refunds, and others, in enhancement to refunds, also certified to continue getting ERC in every payroll they refine through December 31, 2021, at around 30% of their pay-roll expense.
Some organizations have actually obtained refunds from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can currently get the ERC even if they currently obtained a PPP car loan. Note, however, that the ERC will just relate to wages not made use of for the PPP.
maintain a 20% reduction in gross invoices .
A federal government authority needed partial or full shutdown of your service during 2020 or 2021. This includes your operations being limited by commerce, lack of ability to travel or constraints of team meetings.
- Gross receipt reduction criteria is different for 2020 as well as 2021, yet is measured against the existing quarter as contrasted to 2019 pre-COVID amounts:
- A government authority called for full or partial closure of your organization throughout 2020 or 2021. This includes your procedures being restricted by business, lack of ability to travel or limitations of team conferences.
- Gross receipt reduction standards is different for 2020 and 2021, yet is gauged versus the current quarter as compared to 2019 pre-COVID amounts.
Do we still qualify if we remained open throughout the pandemic?
Yes. To certify, your service has to fulfill either among the adhering to standards:
- Experienced a decrease in gross receipts by 20%, or
- Needed to change company procedures because of federal government orders
Lots of things are thought about as modifications in business procedures, including changes in work functions and also the purchase of extra protective tools.