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.
How It Works
Even if you don't own a company, be sure to share this video with service owners you know, this video might actually be worth tens of thousands of dollars for them. And if you are a service owner and after you view this video you desire to talk with me and a member of my team, who will also be either a CPA like myself or an EA, shoot me an email, [email protected], inform me a little about your organization and your ballpark year-over-year income, and let's see if we can get some more cash back in your pocket since you can take this credit versus your payroll taxes you pay by minimizing your required work tax deposits or you can ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
I am not going to get into the complexities of that kind here or the Form 941 and all the payroll things since that's the things your CPA should stress over. In this video I wish to tell 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 informed and take ownership of your own tax situations, of your service's tax scenario to create more cash circulation in your organization and more wealth for yourself.
About Employee Retention 2021 Erc Calculation
Alright, now let's go into this and let's talk about the employee retention credit or the ERC as some folks like to call it, before I get into this, I wish to state that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for basic informative purposes only, yes, I am a tax and a cpa expert, but I am not your CPA nor your tax professional unless you have actually engaged my company as such. Another disclaimer here, for purposes of this video I am assuming that if you're viewing this you are a little business owner, which for employee retention credit functions implies one hundred or fewer staff members for purposes of the 2020 credit and five hundred or less employees for purposes of the 2021 credit, if you have a company with over five hundred staff members I envision you have in-house counsel, in-house CPAs who are on top of this things, but I'm here for you small company owners who might deal with a regional tax professional who is so neck-deep in tax returns right now since the federal government extended the tax deadline to May 17 or volume is simply the nature of their service that your tax specialist hasn't had the time to dig into the weeds here like I have.
So employee retention credit, why is it so rewarding for company owner in 2021 and why weren't we talking about it in 2020, it's been around given that then, since the CARES Act? Why is it getting all this buzz now that it wasn't last year? Well, let's back it up. Yes, the employee retention credit has actually been around because the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love in 2015 in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Initially, in 2020, if you got a PPP loan as an employer, you were not qualified for the employee retention credit.
Generally the employee retention credit had a glow-up between 2020 and 2021, it went from the nerdy woman with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for business 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 2021 Erc Calculation
First reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, however obviously you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and then reverse and claim 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 after that you declaring a credit against the taxes you pay the government on those incomes that the federal government paid 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 period that will get you complete PPP forgiveness but likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as many costs as possible that do not count for employee retention credit purposes. For example, you can't claim the employee retention credit on state joblessness insurance contributions, but state unemployment insurance contributions count toward PPP forgiveness, see? So you 'd want to dispose all your state unemployment insurance coverage 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 extremely quickly and it's very scenario particular in terms of enhancing 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 simply understand that you truly have to do the math when doing your PPP forgiveness to make certain 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 sense as well, why should the government offer you a deduction for these wages that they already offered you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply love discussing this stuff, however let's discuss another factor why the employee retention credit is more appealing now than it was last year, and that is that it's simpler to receive the employee retention credit in 2021. In 2020, for a quarter to get approved for the employee retention credit, you had to reveal a 50% decline in gross receipts compared to the very same calendar quarter in 2019.
However in 2021, for a quarter to receive the employee retention credit, you only need to reveal a 20% decline in gross receipts compared to the exact same calendar quarter in 2019. So this suggests far more businesses will certify. My business, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
So I didn't receive the 2020 employee retention credit initially, since I got preliminary of PPP money and second since my business didn't suffer that large 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, indicating 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 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 likewise receive Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply qualify for Q1 and Q3 2021, you likewise qualify for Q2 and Q4 based on the lookback. Also, even if you didn't have an enough decline in revenue, you can qualify for the employee retention credit if you were required to totally 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 during that period of complete or partial shutdown.
Typical example, you own a restaurant, and your governor signed an executive order mentioning that you require to close down indoor dining. That is an example of a partial shutdown. Also, not only are more businesses 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 services eligible through the 20% decline limit instead of the 50% decrease threshold, however the 2021 credit is also more profitable than the 2020 credit.
Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of qualified salaries per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that whole 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 salaries per worker per quarter, so we're talking about an optimum credit of $7,000 per worker per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker.
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 finest covered period that will get you full PPP forgiveness but also optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, but 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 simpler to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, due to the fact that I got first round of PPP money and second due to the fact that my company didn't suffer that large 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Not only are more companies eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the very same earnings and making more services eligible through the 20% decline threshold rather than the 50% decline threshold, but the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified incomes per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that whole time period?
Exactly How to Begin
The best method is to work with a no-risk, contingency-based expense financial savings business. That will certainly bargain in behalf of their clients to get the finest rates feasible for their existing customers. They will certainly examine old billings for mistakes getting their customers reimbursements as well as credits. They can increase the earnings and also total evaluation of their clients companies.
Solutions offered can include:
Devoted specialists that will certainly interpret very complex program policies and also will certainly be offered to address your questions, including:
Exactly how does the PPP finance aspect into the ERC?
What are the distinctions in between the 2020 and 2021 programs and just how does it put on your organization?
What are gathering rules for larger, multi-state companies, as well as how do I interpret several states executive orders?
Just how do part-time, Union, and also tipped employees impact the amount of my refunds?
Extensive examination regarding your eligibility
Thorough analysis of your case
Advice on the declaring process as well as paperwork
Particular program expertise that a normal CPA or pay-roll cpu might not be well-versed in
Quick as well as smooth end-to-end procedure, from qualification to claiming and also getting reimbursements
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
All Set To Start? Its Simple.
1. Whichever company you choose to work with will certainly identify whether your service qualifies for the ERC.
2. They will examine your case and also calculate the maximum amount you can receive.
3. Their team guides you through the asserting procedure, from starting to finish, including appropriate paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and also right on September 30, 2021, for eligible businesses.
You can make an application for refunds for 2020 and 2021 after December 31st of this year, into 2022 and 2023. And possibly past after that too.
Many organizations have received reimbursements, and also others, along with refunds, likewise certified to continue getting ERC in every pay-roll they process through December 31, 2021, at around 30% of their payroll expense.
Some organizations have gotten refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can currently certify for the ERC even if they currently obtained a PPP funding. Note, though, that the ERC will only put on salaries not utilized for the PPP.
Do we still accredit if we did not incur a 20% decrease in gross receipts .
A federal government authority called for complete or partial closure of your business throughout 2020 or 2021. This includes your procedures being limited by business, failure to travel or constraints of group meetings.
- Gross invoice decrease requirements is different for 2020 as well as 2021, yet is determined versus the current quarter as compared to 2019 pre-COVID amounts:
- A government authority needed full or partial shutdown of your business throughout 2020 or 2021. This includes your operations being limited by commerce, failure to take a trip or restrictions of group conferences.
- Gross receipt decrease criteria is different for 2020 and 2021, however is determined against the existing quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we continued to be open during the pandemic?
Yes. To qualify, your business needs to fulfill either among the adhering to requirements:
- Experienced a decline in gross receipts by 20%, or
- Needed to change service operations as a result of government orders
Lots of items are taken into consideration as modifications in company operations, consisting of changes in task functions and the acquisition of added safety equipment.