Why Employee Retention Credit 2020

Reason, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, however 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 as well. 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 federal government on those salaries that the federal government spent 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 pick the best covered duration that will get you complete PPP forgiveness however also optimize your employee retention credit.



For PPP forgiveness, you desire to fill up that payroll container with as lots of expenses as possible that don't count for employee retention credit purposes. You can't declare the employee retention credit on state unemployment insurance contributions, but state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd want to dispose all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary incomes as possible to take the employee retention credit on.

So this can get extremely technical extremely fast and it's really circumstance particular in regards to optimizing PPP vs. ERC and my company has tools to figure this things out for you, I'm not going to go into all that here, but feel in one's bones that you really need to do the mathematics when doing your PPP forgiveness to ensure 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, which makes sense too, why should the government give you a reduction for these earnings that they already gave you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply enjoy speaking about this stuff, but let's talk about another reason that the employee retention credit is more attractive now than it was in 2015, and that is that it's easier to receive the employee retention credit in 2021. In 2020, for a quarter to certify for the employee retention credit, you needed to reveal a 50% reduction in gross invoices compared to the exact same calendar quarter in 2019.

But in 2021, for a quarter to get approved for the employee retention credit, you only require to show a 20% reduction in gross invoices compared to the same calendar quarter in 2019. So this implies even more companies will qualify. My company, for instance, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.

So I didn't get approved for the 2020 employee retention credit first, due to the fact that I got preliminary of PPP money and second since my service 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 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 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 on Q1 2021's gross invoices, you will also certify for 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 receive Q1 and Q3 2021, you likewise receive Q2 and Q4 based on the lookback. Even if you didn't have an enough decline in earnings, you can certify for the employee retention credit if you were required to fully or partly suspend operations in your company 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 duration of partial or complete shutdown.

Typical example, you own a restaurant, and your guv signed an executive order stating that you need to shut down indoor dining. That is an example of a partial shutdown. Not only are more businesses eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the exact same incomes and making more services eligible through the 20% decline limit rather than the 50% decrease limit, however the 2021 credit is likewise more lucrative than the 2020 credit.

This is because for 2020, the employee retention credit amounted to 50% of all certified incomes for 2020, the employee retention credit amounted to 50% of all certified wages you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in salaries for that whole period. So the optimum 2020 credit per worker was $5,000. Okay, however that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of certified incomes per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per worker ... for that whole 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 worker per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. $7,000 times four is $28,000 if you're eligible all four quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member. That's big. That's a godsend to numerous entrepreneur today. You see what I imply now, right, how the employee retention credit has gone from ugly duckling in 2020 to lovely swan in 2021? And by the method, by the method, certified salaries consists of employer-paid health insurance coverage premiums.


If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to pick the finest covered period that will get you full PPP forgiveness but likewise maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply 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 much easier to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got first round of PPP money and 2nd due to the fact that my company didn't suffer that large 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company qualifies. Not only 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 exact same earnings and making more businesses eligible through the 20% decrease limit rather than the 50% decrease 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 because for 2021, the credit is equal to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... for that entire time duration?