Why Employee Retention Tax Credit And Ppp

Very first factor, the employee retention credit for both 2020 and 2021 is now offered to PPP receivers, but naturally you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and after that reverse and declare the employee retention credit on those earnings as well. 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 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 require to choose the finest covered duration that will get you complete PPP forgiveness but likewise maximize your employee retention credit.



Also, for PPP forgiveness, you want to fill up that payroll pail with as many costs as possible that do not count for employee retention credit functions. For example, you can't declare the employee retention credit on state unemployment insurance coverage contributions, but state unemployment insurance contributions count toward PPP forgiveness, see? So you 'd want to dispose all your state unemployment insurance contributions on your PPP forgiveness application to leave as much normal earnings as possible to take the employee retention credit on.

This can get very technical extremely fast and it's really circumstance specific in terms of enhancing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, but simply understand that you actually have to do the math 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 wages you claimed the employee retention credit on, and that makes good sense also, why should the federal government offer you a reduction for these earnings that they currently gave you a credit for? Essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, but let's speak about another reason why the employee retention credit is more attractive now than it was in 2015, which is that it's simpler to certify for the employee retention credit in 2021. In 2020, for a quarter to get approved for the employee retention credit, you needed to show a 50% decrease in gross receipts compared to the very same calendar quarter in 2019.

In 2021, for a quarter to qualify for the employee retention credit, you only need to reveal a 20% reduction in gross receipts compared to the very same calendar quarter in 2019. This indicates far more organizations will qualify. My service, for instance, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a comparable story in 2015 too.

I didn't certify for the 2020 employee retention credit initially, due to the fact that I got very first round of PPP cash and 2nd due to the fact that my service 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 organization certifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, implying that, for example, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for purposes 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 get approved for Q1 2021 based on Q1 2021's gross receipts, you will also get approved 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 certify for Q1 and Q3 2021, you also receive Q2 and Q4 based on the lookback. Also, even if you didn't have an enough decline in profits, you can qualify for the employee retention credit if you were needed to fully or partly suspend operations in your service 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 duration of partial or complete 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 just are more businesses 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 salaries and making more companies eligible through the 20% decline limit rather than the 50% decline limit, however the 2021 credit is also more lucrative than the 2020 credit.

This is since for 2020, the employee retention credit was equal to 50% of all certified incomes for 2020, the employee retention credit was equal to 50% of all qualified salaries you paid staff members in 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, however that's nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of certified incomes per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per staff member ... for that whole time period? No. Per quarter. So for 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on approximately $10,000 in salaries per staff member per quarter, so we're talking about an optimum credit of $7,000 per worker per quarter. If you're eligible all 4 quarters, $7,000 times four is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member. That's substantial. That's a godsend to many company owner right now. You see what I indicate now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021? And by the method, by the way, qualified 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 full PPP forgiveness but likewise optimize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply enjoy 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 qualify 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 first round of PPP cash and second since my company didn't suffer that big 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. Not only are more companies 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 earnings and making more companies eligible through the 20% decrease limit rather than the 50% decrease limit, but the 2021 credit is likewise more rewarding than the 2020 credit.

Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of qualified earnings per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per worker ... for that whole time duration?