Why Employee Retention Credit Irs

Very first factor, the employee retention credit for both 2020 and 2021 is now readily 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 then turn around and declare the employee retention credit on those incomes. The government doesn't look too fondly on paying your payroll for you through the PPP and after that you claiming a credit against the taxes you pay the government on those earnings that the government spent 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 need to pick the very best covered duration that will get you full PPP forgiveness but also optimize your employee retention credit.



Also, for PPP forgiveness, you desire to fill that payroll container with as many expenses as possible that don't count for employee retention credit purposes. For instance, you can't declare the employee retention credit on state joblessness insurance coverage contributions, but state unemployment 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 incomes as possible to take the employee retention credit on.

So this can get extremely technical very quick and it's really situation particular in terms of enhancing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to go into all that here, but simply know that you truly have to do the mathematics 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 deduct the wages you declared the employee retention credit on, and that makes sense as well, why should the federal government offer you a deduction for these earnings that they already offered you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this stuff, but let's talk about another reason why the employee retention credit is more appealing now than it was in 2015, and that is that it's easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to show a 50% reduction in gross invoices compared to the exact same calendar quarter in 2019.

In 2021, for a quarter to certify for the employee retention credit, you just require to reveal a 20% decline in gross invoices compared to the exact same calendar quarter in 2019. So this suggests much more organizations will certify. My company, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.

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 because my company didn't suffer that big 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Also, for 2021, for any quarter, you can choose to use the lookback quarter, suggesting that, for example, even if your Q1 2021 gross invoices aren't a minimum of 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 certify for Q1 2021 based on Q1 2021's gross invoices, you will likewise qualify for Q2 2021 given 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 get approved for Q1 and Q3 2021, you also get approved for Q2 and Q4 based upon the lookback. Even if you didn't have an adequate decrease in income, you can qualify for the employee retention credit if you were needed to fully or partially suspend operations in your business 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 during that duration of partial or complete shutdown.

Common example, you own a restaurant, and your governor signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. Likewise, not just are more services qualified for the employee retention credit thanks to these brand-new laws, making PPP receivers eligible for the employee retention credit though not on the exact same incomes and making more services eligible through the 20% decrease threshold rather than the 50% decline limit, however the 2021 credit is likewise more lucrative than the 2020 credit.

This is since for 2020, the employee retention credit was equivalent to 50% of all certified earnings for 2020, the employee retention credit amounted to 50% of all certified wages you paid employees between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in incomes for that entire time period. The maximum 2020 credit per staff member was $5,000. Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit amounts to 70% of qualified incomes per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per staff member ... for that entire period? No. Per quarter. So for 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on as much as $10,000 in earnings per employee per quarter, so we're speaking about a maximum credit of $7,000 per worker per quarter. If you're qualified all 4 quarters, $7,000 times 4 is $28,000. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's substantial. That's a blessing to many company owners right now. You see what I imply now, right, how the employee retention credit has gone from unsightly duckling in 2020 to lovely swan in 2021? And by the way, by the method, qualified incomes consists of 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 require to select the best covered period that will get you complete PPP forgiveness however also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just like 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 easier to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got very first round of PPP cash and 2nd since my organization didn't suffer that large 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Not just 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 incomes and making more businesses eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is also more financially rewarding than the 2020 credit.

Not bad, however that's nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of qualified incomes per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per staff member ... for that whole time duration?