Why Employee Retention Qualifications

Reason, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, however of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then turn around and claim the employee retention credit on those incomes. The federal government does not look too fondly on paying your payroll for you through the PPP and then you declaring a credit against the taxes you pay the federal government on those wages that the federal government paid for you. That makes sense. Now, there's some planning 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 select the best covered duration that will get you full PPP forgiveness however likewise optimize your employee retention credit.



Also, for PPP forgiveness, you want to fill up that payroll container with as lots of expenses as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state unemployment insurance coverage contributions, but state joblessness insurance contributions count toward PPP forgiveness, see? You 'd desire to dump all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much regular salaries as possible to take the employee retention credit on.

So this can get extremely technical extremely fast and it's very circumstance 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, however simply know that you really have to do the math 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 deduct the salaries you declared the employee retention credit on, which makes good sense as well, why should the federal government provide you a reduction for these earnings that they already offered you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like speaking about this things, however let's speak about another reason 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. In 2020, for a quarter to certify for the employee retention credit, you needed to show a 50% reduction in gross invoices compared to the very same calendar quarter in 2019.

In 2021, for a quarter to qualify for the employee retention credit, you only require to show a 20% decrease in gross receipts compared to the very same calendar quarter in 2019. So this implies much more companies will certify. My service, for instance, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.

I didn't certify for the 2020 employee retention credit initially, since I got first round of PPP money and second because my business 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 company qualifies. Likewise, for 2021, for any quarter, you can elect to utilize the lookback quarter, implying that, for instance, even if your Q1 2021 gross receipts aren't at least 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 receive Q1 2021 based upon Q1 2021's gross receipts, you will likewise receive Q2 2021 given that you certified in the lookback quarter of Q1 2021.

Exact same thing for Q2 to Q3 and Q3 to Q4, so generally if you just receive Q1 and Q3 2021, you also certify for Q2 and Q4 based upon the lookback. Even if you didn't have an enough decline in revenue, you can qualify for the employee retention credit if you were required to completely or partly suspend operations in your business throughout any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are eligible for the employee retention credit throughout that period of complete or partial shutdown.

Typical example, you own a restaurant, and your guv signed an executive order specifying that you need to shut down indoor dining. That is an example of a partial shutdown. Likewise, not only are more organizations eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the very same wages and making more services eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is likewise more financially rewarding than the 2020 credit.

This is since for 2020, the employee retention credit amounted to 50% of all certified earnings for 2020, the employee retention credit was equivalent to 50% of all qualified salaries you paid workers in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in incomes for that whole period. So the optimum 2020 credit per employee was $5,000. Okay, however that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified earnings per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per staff member ... for that whole time period? No. Per quarter. So for 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on approximately $10,000 in earnings per worker per quarter, so we're discussing a maximum credit of $7,000 per worker per quarter. $7,000 times 4 is $28,000 if you're eligible all four quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per worker. That's huge. That's a blessing to many entrepreneur today. So you see what I suggest now, right, how the employee retention credit has gone from ugly duckling in 2020 to lovely swan in 2021, right? And by the way, by the method, qualified salaries 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 require to pick the best covered period that will get you complete PPP forgiveness but also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just like talking about this stuff, but let's talk about another reason why the employee retention credit is more attractive now than it was last year, and that is that it's much easier to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, due to the fact that I got very first round of PPP cash and 2nd since my service 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 business certifies. Not just are more services 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 earnings and making more organizations eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is likewise more 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 equal to 70% of qualified earnings per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per worker ... for that whole time period?