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.
Exactly How It Works
This is huge, a lot of small company owners do not understand about this, or they've found out about it, however they don't understand much about it, even numerous tax professionals do not know the ins and outs of this thing due to the fact that it's brand-new and a great deal of these modificationsthat are useful to entrepreneur happened in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so profitable now in 2021, more lucrative, far more rewarding, in truth now than it was in 2020, 5x more profitable at least. Even if you do not own a business, be sure to share this video with company owners you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are a business owner and after you enjoy this video you desire to talk with me and a member of my group, who will also be either a CPA like myself or an EA, shoot me an e-mail, [email protected], tell me a little about your organization and your ballpark year-over-year earnings, and let's see if we can get some more cash back in your pocket because you can take this credit versus your payroll taxes you pay by reducing 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 type here or the Form 941 and all the payroll stuff because that's the stuff your CPA should fret about. In this video I wish to tell you what you require to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why haven't you informed me about this?" You can be informed and take ownership of your own tax scenarios, of your organization's tax scenario to generate more cash flow in your organization and more wealth for yourself.
About Employee Retention Ertc
Alright, now let's dig into this and let's speak about the employee retention credit or the ERC as some folks like to call it, prior to I get into this, I want to say that nothing in this video is to be taken as legal or tax recommendations, this video is for basic educational purposes only, yes, I am a tax and a certified public accountant professional, but I am not your CPA nor your tax expert unless you have engaged my firm as such. Another disclaimer here, for functions of this video I am assuming that if you're watching this you are a small company owner, which for employee retention credit functions suggests one hundred or less employees for functions of the 2020 credit and five hundred or less employees for purposes of the 2021 credit, if you have a business with over 5 hundred workers I envision you have in-house counsel, in-house CPAs who are on top of this things, however I'm here for you small company owners who may work with a local tax expert who is so neck-deep in tax returns right now since the government extended the tax due date to May 17 or volume is simply the nature of their business that your tax professional hasn't had the time to dig into the weeds here like I have.
So employee retention credit, why is it so financially rewarding for company owner in 2021 and why weren't we speaking about it in 2020, it's been around ever since, considering that the CARES Act? Why is it getting all this buzz now that it wasn't last year? Well, let's back it up. Yes, the employee retention credit has actually been around because the CARES Act that was passed over a year ago in March 2020, but the employee retention credit didn't get much love last year in 2020 due to the fact that of the PPP, the Paycheck Protection Program. Initially, in 2020, if you received a PPP loan as a company, you were not eligible for the employee retention credit.
The stimulus costs 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 appealing. So basically the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy woman with unkempt eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for entrepreneur in 2021. Why? Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act? I'll tell you why, a couple of factors.
Why Employee Retention Ertc
Factor, 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 employees and then turn around and declare the employee retention credit on those wages. 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 complete PPP forgiveness however likewise optimize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll container with as many expenses as possible that don't count for employee retention credit purposes. For instance, you can't claim the employee retention credit on state unemployment insurance contributions, but state joblessness insurance contributions count towards PPP forgiveness, see? You 'd want to dispose all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much common wages as possible to take the employee retention credit on.
Another thing to note is you can't deduct the earnings you declared the employee retention credit on, and that makes sense as well, why should the federal government provide you a deduction for these earnings that they already provided you a credit for? Alright, sorry for getting a little sidetracked there, I just like 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 certify for the employee retention credit in 2021.
However in 2021, for a quarter to certify for the employee retention credit, you just need to reveal a 20% reduction in gross invoices compared to the very same calendar quarter in 2019. This suggests far more companies will qualify. My organization, for instance, experienced a 26% decline in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar 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 since my service didn't suffer that big 50% decrease needed to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my company certifies. For 2021, for any quarter, you can choose to utilize the lookback quarter, implying that, for example, 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 determining eligibility for the employee retention credit for Q1 2021, you can compare Q4 2020 to Q4 2019. Ramification here is that if you receive Q1 2021 based upon Q1 2021's gross receipts, you will likewise certify for Q2 2021 given that you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you just receive Q1 and Q3 2021, you likewise get approved for Q2 and Q4 based on the lookback. Even if you didn't have an enough decline in income, you can certify for the employee retention credit if you were needed to totally or partly suspend operations in your organization 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 partial or full shutdown.
Common example, you own a restaurant, and your governor signed an executive order mentioning that you need to shut down indoor dining. That is an example of a partial shutdown. Also, not only are more businesses qualified for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the exact same incomes and making more organizations eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per staff member ... for that entire time duration? For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in salaries per staff member per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker.
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 complete PPP forgiveness but likewise maximize your employee retention credit.
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 easier to qualify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit first, due to the fact that I got very first round of PPP money and second because my company didn't suffer that big 50% decline 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 businesses eligible for the employee retention credit thanks to these new laws, making PPP recipients eligible for the employee retention credit though not on the very same wages and making more businesses eligible through the 20% decrease limit rather than the 50% decline threshold, but the 2021 credit is likewise more lucrative than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of qualified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per worker ... for that whole time duration?
Exactly How to Start
The best means is to collaborate with a no-risk, contingency-based expense savings firm. That will certainly negotiate in behalf of their customers to get the very best prices feasible for their existing customers. They will certainly audit old billings for errors getting their clients reimbursements and also tax credits. They can raise the profitability and overall appraisal of their customers companies.
Solutions provided can include:
Dedicated experts that will certainly analyze extremely complex program rules and also will be available to address your questions, including:
Just how does the PPP funding variable right into the ERC?
What are the distinctions between the 2020 and also 2021 programs as well as exactly how does it use to your organization?
What are gathering rules for bigger, multi-state employers, as well as exactly how do I analyze several states executive orders?
How do part-time, Union, as well as tipped staff members impact the quantity of my refunds?
Comprehensive examination regarding your eligibility
Comprehensive evaluation of your situation
Guidance on the claiming procedure as well as documentation
Details program experience that a routine certified public accountant or pay-roll processor may not be well-versed in
Quick and also smooth end-to-end procedure, from qualification to declaring and also obtaining reimbursements
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Prepared To Get Going? Its Simple.
1. Whichever business you select to work with will identify whether your organization qualifies and gets approvel for the ERC.
2. They will certainly examine your case and compute the maximum amount you can receive.
3. Their group overviews you with the declaring process, from starting to finish, consisting of proper paperwork.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 and ends on September 30, 2021, for qualified companies.
You can request refunds for 2020 and also 2021 after December 31st of this year, into 2022 as well as 2023. And potentially beyond after that as well.
Many organizations have received refunds, as well as others, along with reimbursements, additionally certified to continue getting ERC in every pay-roll they refine to December 31, 2021, at around 30% of their payroll expense.
Some businesses have obtained reimbursements from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently get the ERC also if they currently obtained a PPP lending. Keep in mind, however, that the ERC will just relate to wages not used for the PPP.
Do we still certify if we did not sustain a 20% decline in gross receipts .
A government authority needed complete or partial closure of your business during 2020 or 2021. This includes your procedures being restricted by business, lack of ability to travel or constraints of group conferences.
- Gross receipt reduction criteria is different for 2020 and 2021, however is measured versus the current quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority required complete or partial closure of your business throughout 2020 or 2021. This includes your procedures being restricted by business, failure to take a trip or restrictions of team meetings.
- Gross invoice reduction criteria is different for 2020 and also 2021, but is gauged versus the existing quarter as compared to 2019 pre-COVID amounts.
Do we still certify if we remained open during the pandemic?
Yes. To certify, your organization needs to satisfy either among the following criteria:
- Experienced a decline in gross invoices by 20%, or
- Had to alter company procedures as a result of federal government orders
Many items are taken into consideration as adjustments in service procedures, consisting of shifts in task functions as well as the purchase of extra protective tools.