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.
How It Works
Even if you do not own a company, be sure to share this video with service owners you know, this video could actually be worth 10s of thousands of dollars for them. And if you are a company owner and after you see this video you want 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], inform me a little about your service and your ballpark year-over-year income, and let's see if we can get some more money back in your pocket due to the fact that you can take this credit against your payroll taxes you pay by minimizing your needed employment tax deposits or you can ask for 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 kind here or the Form 941 and all the payroll things since that's the stuff your CPA need to fret about. In this video I desire to inform you what you need to understand so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you informed me about this?" You can be notified and take ownership of your own tax scenarios, of your company's tax situation to generate more money circulation in your service and more wealth for yourself.
About Employee Retention Tax Credit Reinstatement Act
Alright, now let's go into this and let's speak about the employee retention credit or the ERC as some folks like to call it, before I enter this, I want to state that absolutely nothing in this video is to be taken as legal or tax recommendations, this video is for general informative purposes only, yes, I am a CPA and a tax professional, however I am not your CPA nor your tax professional unless you have engaged my firm as such. Another disclaimer here, for functions of this video I am presuming that if you're viewing this you are a small company owner, which for employee retention credit purposes indicates one hundred or fewer staff members for purposes of the 2020 credit and 5 hundred or fewer employees for purposes of the 2021 credit, if you have a company with over five hundred staff members I picture you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you small company owners who might deal with a regional tax professional who is so neck-deep in income tax return right now due to the fact that the government extended the tax due date to May 17 or volume is just the nature of their service 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 lucrative for organization owners in 2021 and why weren't we talking about it in 2020, it's been around since then, because the CARES Act? Yes, the employee retention credit has been around considering that 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 since of the PPP, the Paycheck Protection Program.
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 appealing. Basically the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular girl with unkempt eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owners 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 tell you why, a few reasons.
Why Employee Retention Tax Credit Reinstatement Act
Factor, the employee retention credit for both 2020 and 2021 is now readily available to PPP recipients, 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. The federal government does not look too fondly on paying your payroll for you through the PPP and after that you claiming a credit versus the taxes you pay the government on those earnings that the federal government paid for you. So that makes good sense. Now, there's some preparation here. If you got PPP and you are eligible for the employee retention credit, then when you do your PPP forgiveness application, you require to select the best covered duration that will get you complete PPP forgiveness but also maximize your employee retention credit.
Likewise, for PPP forgiveness, you want to fill up that payroll bucket with as many costs as possible that don't count for employee retention credit functions. You can't claim the employee retention credit on state joblessness insurance contributions, however state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd wish to dump 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 fast 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, however feel in one's bones that you actually have to do the math when doing your PPP forgiveness to ensure 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 salaries you declared the employee retention credit on, which makes good sense as well, why should the federal government offer you a deduction for these wages that they already offered you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love discussing this things, however let's speak about another reason why the employee retention credit is more appealing 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 receive the employee retention credit, you had to reveal 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 just need to reveal a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. This indicates far more organizations will certify. My service, for example, 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 get approved for the 2020 employee retention credit first, due to the fact that I got preliminary of PPP cash and 2nd due to the fact that my business didn't suffer that large 50% decline required to get approved for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Also, for 2021, for any quarter, you can elect to use the lookback quarter, suggesting 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 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 qualify for Q1 2021 based on 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 generally if you just get approved for Q1 and Q3 2021, you also get approved for Q2 and Q4 based upon the lookback. Even if you didn't have an enough decline in income, you can qualify for the employee retention credit if you were required to totally or partially suspend operations in your business throughout any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are eligible for the employee retention credit during that period of complete or partial shutdown.
Typical example, you own a dining establishment, and your guv signed an executive order stating that you require to shut down indoor dining. That is an example of a partial shutdown. Not only are more services eligible 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 organizations eligible through the 20% decrease threshold rather than the 50% decline threshold, but the 2021 credit is likewise more profitable than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit because for 2021, the credit is equivalent to 70% of certified wages per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that entire time period? For 2021 the portion is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in earnings per worker per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. That's right, folks, the optimum 2021 employee retention credit is $28,000 per employee.
If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you need to pick the finest covered period that will get you complete PPP forgiveness but also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, however 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 much easier to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, because I got first round of PPP cash and 2nd since my business 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 qualifies. Not just are more businesses 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 very same earnings and making more businesses eligible through the 20% decrease limit rather than the 50% decline threshold, but the 2021 credit is likewise more financially rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of certified salaries per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in salaries per worker ... for that whole time duration?
Exactly How to Start
That will discuss on behalf of their customers to get the best costs feasible for their existing customers. They will certainly audit old billings for mistakes getting their clients refunds and also credits.
Assistance offered can include:
Dedicated professionals that will certainly translate extremely complicated program rules and will be offered to address your inquiries, including:
How does the PPP loan aspect right into the ERC?
What are the distinctions in between the 2020 and 2021 programs as well as exactly how does it use to your business?
What are aggregation guidelines for bigger, multi-state employers, and also exactly how do I analyze numerous states executive orders?
Exactly how do part-time, Union, and also tipped staff members impact the amount of my reimbursements?
Extensive evaluation concerning your qualification
Comprehensive evaluation of your claim
Guidance on the claiming process and also documentation
Particular program know-how that a regular certified public accountant or payroll cpu might not be well-versed in
Rapid and smooth end-to-end procedure, from qualification to asserting and receiving refunds
|Adams Brown Strategic Allies and CPAs
|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Ready To Start? Its Simple.
1. Whichever company you pick to work with will figure out whether your service certifies and gets approvel for the ERC.
2. They will evaluate your request and also compute the maximum quantity you can obtain.
3. Their team guides you via the claiming process, from beginning to end, consisting of appropriate documents.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 as well as ends on September 30, 2021, for qualified companies.
You can get reimbursements for 2020 and also 2021 after December 31st of this year, right into 2022 and also 2023. And potentially beyond then too.
Many businesses have received refunds, and others, in enhancement to reimbursements, additionally certified to continue obtaining ERC in every pay-roll they refine to December 31, 2021, at about 30% of their payroll cost.
Some companies have received refunds from $100,000 to $6 million.
Do we still qualify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, organizations can now get the ERC also if they already obtained a PPP funding. Keep in mind, though, that the ERC will only relate to incomes not used for the PPP.
Do we still certify if we did not) sustain a 20% decline in gross billings .
A government authority needed complete or partial closure of your service throughout 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to take a trip or restrictions of team meetings.
- Gross receipt reduction criteria is various for 2020 and also 2021, but is gauged against the current quarter as contrasted to 2019 pre-COVID amounts:
- A federal government authority required complete or partial closure of your organization during 2020 or 2021. This includes your operations being limited by commerce, failure to travel or restrictions of team conferences.
- Gross receipt reduction standards is different for 2020 and also 2021, however is measured versus the existing quarter as contrasted to 2019 pre-COVID quantities.
Do we still qualify if we remained open throughout the pandemic?
Yes. To certify, your organization should fulfill either one of the following standards:
- Experienced a decrease in gross receipts by 20%, or
- Needed to change organization procedures because of federal government orders
Several products are considered as modifications in company operations, consisting of changes in job functions and also the purchase of added safety equipment.