How It Works
This is big, a great deal of small company owners do not understand about this, or they've become aware of it, but they don't know much about it, even many tax professionals do not know the ins and outs of this thing since it's new and a lot of these changesthat are beneficial to company owner occurred in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so rewarding now in 2021, more lucrative, far more lucrative, in reality now than it was in 2020, 5x more rewarding at least. Even if you do not own a business, be sure to share this video with organization owners you understand, this video could literally be worth 10s of thousands of dollars for them. And if you are an entrepreneur and after you enjoy this video you wish 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 e-mail, [email protected], inform me a little about your company and your ballpark year-over-year profits, and let's see if we can get some more refund in your pocket because you can take this credit versus your payroll taxes you pay by decreasing your required 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.
I am not going to get into the intricacies of that kind here or the Form 941 and all the payroll things since that's the stuff your CPA ought to stress over. In this video I want to inform you what you require to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why haven't you told me about this?" so you can be notified and take ownership of your own tax scenarios, of your organization's tax situation to generate more capital in your business and more wealth on your own.
Why Employee Retention Tax Credit 2020
Factor, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, 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 claim the employee retention credit on those incomes. 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 likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as lots of expenses as possible that don't count for employee retention credit functions. You can't declare the employee retention credit on state unemployment insurance coverage contributions, however state joblessness insurance contributions count toward PPP forgiveness, see? You 'd want to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much regular incomes as possible to take the employee retention credit on.
This can get very technical extremely quick and it's really situation specific 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 really have to do the mathematics 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, and that makes good sense also, why should the government give you a deduction for these wages that they currently gave you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just enjoy speaking about this stuff, but let's talk about another reason the employee retention credit is more appealing now than it was last year, 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% decrease in gross receipts compared to the exact same calendar quarter in 2019.
In 2021, for a quarter to qualify for the employee retention credit, you only require to reveal a 20% decline in gross receipts compared to the same calendar quarter in 2019. So this implies even more businesses will certify. My business, 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 first round of PPP cash and second because my company didn't suffer that large 50% decrease needed to get approved for the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my organization qualifies. Likewise, for 2021, for any quarter, you can elect to use the lookback quarter, meaning that, for example, even if your Q1 2021 gross invoices aren't at least 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 get approved for Q1 2021 based upon Q1 2021's gross invoices, you will likewise qualify for Q2 2021 considering 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 simply receive Q1 and Q3 2021, you likewise certify for Q2 and Q4 based on the lookback. Even if you didn't have an adequate decrease in profits, you can qualify for the employee retention credit if you were required to completely or partially suspend operations in your company during 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.
Common example, you own a restaurant, and your governor signed an executive order stating that you need to close down indoor dining. That is an example of a partial shutdown. Not only are more organizations qualified 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 incomes and making more organizations eligible through the 20% decline limit rather than the 50% decline limit, however the 2021 credit is also more profitable than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit amounted to 50% of all qualified incomes for 2020, the employee retention credit amounted to 50% of all certified incomes you paid workers between March 12, 2020, and December 31, 2020, with a limit of $10,000 in incomes for that whole period. The maximum 2020 credit per staff member was $5,000. Okay, but that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per staff member ... for that entire time duration? No. Per quarter. So for 2021 the percentage 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 talking about a maximum credit of $7,000 per worker per quarter. If you're qualified all 4 quarters, $7,000 times four is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee. That's huge. That's a godsend to numerous organization owners right now. So you see what I mean now, right, how the employee retention credit has gone from ugly duckling in 2020 to beautiful swan in 2021, right? And by the way, by the way, certified incomes 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 choose the finest covered duration that will get you complete PPP forgiveness however likewise optimize 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 certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, due to the fact that I got very first round of PPP money and second since 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 organization certifies. Not only are more services qualified 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 limit, however the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of certified earnings per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per staff member ... for that entire time duration?
Exactly How to Begin
The best method is to collaborate with a no-risk, contingency-based expense savings firm. That will certainly discuss on part of their clients to obtain the very best rates possible for their existing clients. They will audit old invoices for errors getting their customers refunds and tax credits. They can raise the productivity and also overall assessment of their clients organizations.
Solutions supplied can include:
Committed specialists that will interpret extremely intricate program guidelines as well as will certainly be readily available to answer your concerns, including:
Exactly how does the PPP lending element right into the ERC?
What are the differences in between the 2020 and also 2021 programs as well as exactly how does it relate to your service?
What are aggregation rules for larger, multi-state employers, and also exactly how do I translate multiple states executive orders?
Just how do part-time, Union, and also tipped employees affect the quantity of my refunds?
Complete evaluation concerning your eligibility
Comprehensive evaluation of your claim
Advice on the asserting procedure as well as paperwork
Certain program know-how that a regular certified public accountant or payroll cpu could not be well-versed in
Quick and smooth end-to-end process, from eligibility to claiming and also getting refunds
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Prepared To Get Going? Its Simple.
1. Whichever business you select to work with will identify whether your organization qualifies for the ERC.
2. They will certainly evaluate your request and calculate the optimum quantity you can receive.
3. Their group overviews you through the declaring process, from beginning to end, consisting of proper paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 and ends on September 30, 2021, for eligible businesses.
You can look for refunds for 2020 and also 2021 after December 31st of this year, right into 2022 and 2023. As well as potentially beyond then as well.
Many businesses have received refunds, and also others, in addition to reimbursements, likewise qualified to proceed receiving ERC in every pay-roll they process to December 31, 2021, at around 30% of their pay-roll cost.
Some businesses have actually received reimbursements from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can now get approved for the ERC also if they currently received a PPP lending. Keep in mind, though, that the ERC will only relate to wages not made use of for the PPP.
sustain a 20% decrease in gross invoices .
A federal government authority needed partial or full shutdown of your business during 2020 or 2021. This includes your procedures being restricted by commerce, lack of ability to travel or constraints of group conferences.
- Gross receipt reduction requirements is various for 2020 as well as 2021, but is measured versus the existing quarter as compared to 2019 pre-COVID quantities:
- A government authority required full or partial closure of your business throughout 2020 or 2021. This includes your operations being restricted by commerce, failure to travel or constraints of group meetings.
- Gross invoice reduction standards 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 certify, your organization should fulfill either among the complying with criteria:
- Experienced a decline in gross receipts by 20%, or
- Needed to alter organization operations because of government orders
Several things are considered as changes in business operations, consisting of changes in work functions and also the acquisition of additional protective tools.