Why Employee Retention Tax Credit And Ppp

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 staff members and then turn around and claim the employee retention credit on those salaries. 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 period that will get you full PPP forgiveness however likewise maximize your employee retention credit.



For PPP forgiveness, you want to fill up that payroll container with as numerous expenses as possible that do not count for employee retention credit purposes. For example, you can't declare the employee retention credit on state joblessness insurance contributions, however state joblessness insurance contributions count toward PPP forgiveness, see? You 'd want to dump 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 really technical very quick and it's extremely situation particular in terms of enhancing PPP vs. ERC and my company has tools to figure this stuff out for you, I'm not going to dig into all that here, however simply understand that you truly 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 incomes you claimed the employee retention credit on, and that makes sense too, why should the government offer you a deduction for these earnings that they currently provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just like speaking about this stuff, however let's talk about another reason that the employee retention credit is more appealing now than it was last year, which is that it's simpler to get approved for the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to reveal a 50% reduction in gross receipts compared to the same calendar quarter in 2019.

In 2021, for a quarter to qualify for the employee retention credit, you just require to show a 20% decline in gross invoices compared to the very same calendar quarter in 2019. So this means much more businesses will qualify. My company, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.

So I didn't certify for the 2020 employee retention credit first, since I got preliminary of PPP money and second due to the fact that my company didn't suffer that large 50% decrease required to receive the employee retention credit last year.But for 2021, a minimum of for Q1, yeah, my organization qualifies. 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 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. Ramification here is that if you get approved for Q1 2021 based upon Q1 2021's gross invoices, you will likewise qualify for Q2 2021 because you certified in the lookback quarter of Q1 2021.

Exact same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply receive Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Also, even if you didn't have an adequate decrease in profits, you can receive the employee retention credit if you were needed to totally or partially suspend operations in your organization 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 throughout that duration of partial or complete shutdown.

Typical example, you own a restaurant, and your guv signed an executive order mentioning that you need to shut down indoor dining. That is an example of a partial shutdown. Likewise, not only 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 same incomes and making more organizations eligible through the 20% decline limit instead of the 50% decrease limit, however the 2021 credit is also more lucrative than the 2020 credit.

This is because for 2020, the employee retention credit amounted to 50% of all qualified wages for 2020, the employee retention credit was equal to 50% of all qualified incomes you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in incomes for that whole time duration. The maximum 2020 credit per worker was $5,000. Okay, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit amounts to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per worker ... for that whole time period? No. Per quarter. For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in wages per staff member per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. If you're qualified all four quarters, $7,000 times 4 is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's substantial. That's a blessing to numerous entrepreneur today. You see what I suggest now, right, how the employee retention credit has gone from awful duckling in 2020 to beautiful swan in 2021? And by the way, by the way, qualified earnings includes 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 need to select the finest covered period that will get you full PPP forgiveness but also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I just enjoy talking about this stuff, but 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 simpler to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, because I got very first round of PPP money and 2nd due to the fact that my organization didn't suffer that big 50% decrease required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Not just 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 exact same earnings and making more businesses eligible through the 20% decline limit rather than the 50% decrease limit, however the 2021 credit is likewise more rewarding than the 2020 credit.

Not bad, however that's 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, limited to $10,000 in incomes per worker ... for that entire time period?