Why Employee Retention Tax Credit

Reason, the employee retention credit for both 2020 and 2021 is now readily available to PPP receivers, but 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 declare the employee retention credit on those salaries. If you got PPP and you are eligible 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 however also optimize your employee retention credit.



Likewise, for PPP forgiveness, you wish to fill that payroll container with as lots of expenses as possible that do not count for employee retention credit functions. For example, you can't declare the employee retention credit on state joblessness insurance coverage contributions, however state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd wish to discard all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much common wages as possible to take the employee retention credit on.

So this can get extremely technical really quickly and it's very circumstance 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 go into all that here, but feel in one's bones that you truly need to do the mathematics when doing your PPP forgiveness to make sure you're not leaving anything on the table in regards to 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 too, why should the government provide you a reduction for these wages that they already provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I simply like speaking about this stuff, but let's talk about another reason why the employee retention credit is more appealing now than it was last year, and that is that it's much easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to qualify for the employee retention credit, you had to show a 50% decrease in gross invoices compared to the exact same calendar quarter in 2019.

But in 2021, for a quarter to get approved for the employee retention credit, you just require to show a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. So this suggests much more organizations will qualify. My service, for example, experienced a 26% decline 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 first, because I got very first round of PPP money and 2nd because my business 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 company qualifies. Also, for 2021, for any quarter, you can choose to use the lookback quarter, indicating that, for instance, even if your Q1 2021 gross invoices aren't at least 20% lower than your Q1 2019 gross invoices, you can compare for purposes of figuring out 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 on Q1 2021's gross receipts, you will also certify for Q2 2021 considering that you qualified in the lookback quarter of Q1 2021.

Exact same thing for Q2 to Q3 and Q3 to Q4, so essentially if you simply qualify for Q1 and Q3 2021, you also get approved for Q2 and Q4 based on the lookback. Even if you didn't have a sufficient decrease in revenue, you can certify for the employee retention credit if you were required to completely or partly suspend operations in your business 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 dining establishment, and your guv signed an executive order mentioning that you require to close down indoor dining. That is an example of a partial shutdown. Also, not just are more organizations 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 very same wages and making more services eligible through the 20% decline limit instead of the 50% decrease threshold, but the 2021 credit is likewise more rewarding than the 2020 credit.

This is because for 2020, the employee retention credit was equal to 50% of all certified earnings for 2020, the employee retention credit was equal to 50% of all certified salaries you paid employees between March 12, 2020, and December 31, 2020, with a limit of $10,000 in earnings for that whole time duration. So 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 equivalent to 70% of certified incomes per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... for that entire period? No. Per quarter. For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in wages per worker per quarter, so we're talking about an optimum credit of $7,000 per employee per quarter. $7,000 times 4 is $28,000 if you're qualified all 4 quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee. That's huge. That's a godsend to numerous company owner today. You see what I suggest 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 salaries includes employer-paid medical insurance premiums.


If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to pick the best covered duration that will get you complete PPP forgiveness however also maximize your employee retention credit.



Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, but let's talk about another reason why the employee retention credit is more appealing 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 qualify for the 2020 employee retention credit first, since I got very first round of PPP money and second since my company 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 only are more companies 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 very same wages and making more businesses eligible through the 20% decline limit rather than the 50% decline limit, however the 2021 credit is likewise more lucrative 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 salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per staff member ... for that whole time duration?