Alright, everybody, so the SBA this week came out and said that it has stopped accepting new PPP applications from most lenders. The SBA informed lenders this past Tuesday that the PPP general fund was out of money and that the only remaining funds available for new applications are $8 billion set aside for community financial institutions (CFIs), which are institutions that specifically work with businesses in underserved communities. But all is not lost, dear small business owners of America. If you missed out on the PPP or if you did not qualify for the PPP, don't lose hope because you may still qualify for the employee retention credit on all those wages you didn't claim for PPP forgiveness, and this employee retention credit could be worth up to $28,000 per employee. And yes, even if you got PPP money, you can still get a piece of this employee retention credit cake.
Just how It Functions
Even if you do not own a service, be sure to share this video with company owners you understand, this video might actually be worth tens of thousands of dollars for them. And if you are a service owner and after you view this video you want to talk with me and a member of my team, who will likewise be either a CPA like myself or an EA, shoot me an email, [email protected], tell me a little about your company and your ballpark year-over-year earnings, and let's see if we can get some more money back in your pocket because you can take this credit against your payroll taxes you pay by lowering your required employment 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 form here or the Form 941 and all the payroll things because that's the things your CPA should fret about. In this video I want to inform you what you require to know so you can go to your CPA and state, "Hey, what about this employee retention credit, why have not you informed me about this?" You can be informed and take ownership of your own tax circumstances, of your company's tax scenario to produce more money circulation in your organization and more wealth for yourself.
About Employee Retention Credit Irs
Alright, now let's dig into this and let's talk about the employee retention credit or the ERC as some folks like to call it, before I get into this, I want to state that absolutely nothing in this video is to be taken as legal or tax advice, this video is for basic informative functions only, yes, I am a CPA and a tax expert, but I am not your CPA nor your tax expert unless you have actually engaged my company. Another disclaimer here, for functions of this video I am presuming that if you're seeing this you are a small company owner, which for employee retention credit purposes implies one hundred or less workers for functions of the 2020 credit and five hundred or less workers for purposes of the 2021 credit, if you have a business with over 5 hundred workers I picture you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you little company owners who may deal with a local tax specialist who is so neck-deep in tax returns today due to the fact that the government extended the tax due date to May 17 or volume is just the nature of their organization that your tax expert hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so profitable for business owners in 2021 and why weren't we talking about it in 2020, it's been around because then, given that the CARES Act? Yes, the employee retention credit has actually been around since the CARES Act that was passed over a year ago in March 2020, however the employee retention credit didn't get much love last year in 2020 since of the PPP, the Paycheck Protection Program.
However the stimulus expense passed in December, the Consolidated Appropriations Act, as well as the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it much more attractive. So generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy girl with thick glasses and unkempt eyebrows and her hair up in 2020 to the belle of the ball for entrepreneur in 2021. Why? Why is the employee retention credit more appealing now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll inform you why, a couple of factors.
Why Employee Retention Credit Irs
Reason, the employee retention credit for both 2020 and 2021 is now offered to PPP recipients, but 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 declare the employee retention credit on those earnings. 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 finest covered period that will get you full PPP forgiveness however also optimize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll pail with as numerous expenses as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state joblessness insurance coverage contributions, however state joblessness insurance contributions count towards PPP forgiveness, see? You 'd desire to discard all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much normal wages as possible to take the employee retention credit on.
Another thing to note is you can't subtract the incomes you declared the employee retention credit on, and that makes sense as well, why should the government offer you a reduction for these earnings that they currently offered you a credit for? Alright, sorry for getting a little sidetracked there, I simply love 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 simpler to certify for the employee retention credit in 2021.
In 2021, for a quarter to certify for the employee retention credit, you just need to reveal a 20% decrease in gross invoices compared to the same calendar quarter in 2019. So this implies even more businesses will certify. My organization, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.
I didn't qualify for the 2020 employee retention credit first, because I got first round of PPP money and second due to the fact that my business didn't suffer that large 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Likewise, for 2021, for any quarter, you can elect to utilize the lookback quarter, suggesting that, for instance, even if your Q1 2021 gross receipts aren't at least 20% lower than your Q1 2019 gross receipts, you can compare for functions of figuring out 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 receipts, you will likewise receive 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 basically if you simply qualify for Q1 and Q3 2021, you likewise qualify for Q2 and Q4 based upon the lookback. Even if you didn't have an enough decrease in income, you can qualify for the employee retention credit if you were required to fully 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 qualified for the employee retention credit throughout that period of complete or partial shutdown.
Common 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 services qualified for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the same salaries and making more organizations eligible through the 20% decrease threshold rather than the 50% decline limit, however the 2021 credit is likewise more profitable than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all qualified earnings for 2020, the employee retention credit was equivalent to 50% of all certified salaries you paid employees between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in wages for that whole period. The maximum 2020 credit per employee was $5,000. Okay, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per worker ... for that whole time duration? 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. If you're eligible all four quarters, $7,000 times four is $28,000. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's big. That's a godsend to numerous entrepreneur today. You see what I indicate now, right, how the employee retention credit has gone from unsightly duckling in 2020 to gorgeous swan in 2021? And by the way, by the way, qualified wages consists of employer-paid medical insurance 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 best 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 simply love talking about this stuff, however 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 easier to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, because I got first round of PPP money and 2nd since 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 organization qualifies. Not only are more services eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients eligible for the employee retention credit though not on the same salaries and making more services eligible through the 20% decline threshold rather than the 50% decrease threshold, however the 2021 credit is likewise more lucrative 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 certified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per employee ... for that whole time duration?
Just How to Begin
The most effective method is to work with a no-risk, contingency-based expense financial savings firm. That will negotiate on behalf of their clients to obtain the best rates feasible for their existing customers. They will certainly audit old invoices for errors getting their customers refunds as well as tax credits. They can boost the earnings and also general evaluation of their customers companies.
Solutions offered can include:
Devoted experts that will certainly interpret extremely complex program regulations and also will be readily available to answer your questions, including:
How does the PPP finance factor into the ERC?
What are the differences between the 2020 as well as 2021 programs and also exactly how does it put on your organization?
What are aggregation regulations for bigger, multi-state companies, as well as exactly how do I analyze multiple states executive orders?
How do part-time, Union, and tipped employees impact the amount of my refunds?
Comprehensive examination regarding your qualification
Thorough evaluation of your situation
Assistance on the declaring process and documents
Specific program knowledge that a normal CPA or payroll processor might not be well-versed in
Smooth and also rapid end-to-end procedure, from eligibility to claiming as well as getting refunds
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Prepared To Get Going? Its Simple.
1. Whichever business you select to work with will identify whether your business certifies for the ERC.
2. They will certainly evaluate your request and also calculate the maximum amount you can receive.
3. Their group overviews you through the claiming process, from beginning to finish, including correct paperwork.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and also finishes on September 30, 2021, for eligible employers.
You can make an application for refunds for 2020 as well as 2021 after December 31st of this year, into 2022 and 2023. And potentially past then also.
Many businesses have received reimbursements, and others, along with reimbursements, additionally certified to continue receiving ERC in every payroll they process through December 31, 2021, at around 30% of their payroll cost.
Some services have gotten refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, companies can now get the ERC even if they currently received a PPP lending. Note, though, that the ERC will just apply to wages not used for the PPP.
Do we still accredit if we did not) incur a 20% decrease in gross invoices .
A federal government authority needed partial or complete shutdown of your service during 2020 or 2021. This includes your operations being restricted by business, inability to take a trip or limitations of team meetings.
- Gross invoice decrease requirements is different for 2020 as well as 2021, yet is determined against the existing quarter as compared to 2019 pre-COVID amounts:
- A government authority required full or partial closure of your service during 2020 or 2021. This includes your procedures being limited by business, lack of ability to travel or limitations of team conferences.
- Gross invoice reduction requirements is various for 2020 and 2021, yet is gauged versus the existing quarter as compared to 2019 pre-COVID quantities.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To qualify, your service must satisfy either one of the adhering to criteria:
- Experienced a decrease in gross receipts by 20%, or
- Needed to transform service procedures because of government orders
Several items are thought about as modifications in company procedures, including changes in job duties and also the acquisition of extra protective devices.