Exactly How It Functions
This is huge, a lot of small service owners do not understand about this, or they've become aware of it, however they don't understand much about it, even numerous tax professionals don't understand the ins and outs of this thing since it's brand-new and a great deal of these changesthat are advantageous to business owners took place 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 profitable, far more profitable, in truth now than it was in 2020, 5x more rewarding at least. Even if you don't own a company, be sure to share this video with service owners you understand, this video could actually be worth 10s of thousands of dollars for them. And if you are an organization owner and after you enjoy this video you wish to talk with me and a member of my team, 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 company and your ballpark year-over-year revenue, and let's see if we can get some more cash back in your pocket since you can take this credit versus your payroll taxes you pay by minimizing 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 complexities of that form here or the Form 941 and all the payroll things since that's the stuff your CPA should stress over. In this video I wish to tell 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 informed and take ownership of your own tax circumstances, of your service's tax scenario to generate more money circulation in your company and more wealth for yourself.
Why Employee Retention Credit
Factor, 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 employees and then turn around and claim the employee retention credit on those incomes. The government doesn't 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 federal government on those earnings that the government spent 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 very best covered period that will get you full PPP forgiveness but also optimize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll container with as many expenses as possible that don't count for employee retention credit purposes. You can't claim the employee retention credit on state unemployment insurance coverage contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd desire to dispose all your state joblessness insurance coverage contributions on your PPP forgiveness application to leave as much ordinary earnings as possible to take the employee retention credit on.
So this can get very technical really quick and it's really circumstance particular in terms of enhancing PPP vs. ERC and my firm has tools to figure this stuff out for you, I'm not going to go into all that here, but just understand that you actually need to do the mathematics 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 wages you declared the employee retention credit on, which makes sense also, why should the federal government provide you a deduction for these salaries that they currently gave you a credit for? So essentially the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just like talking about this things, however let's talk about another reason why the employee retention credit is more attractive now than it was in 2015, and that is that it's easier to receive the employee retention credit in 2021. In 2020, for a quarter to receive the employee retention credit, you needed to show a 50% decrease in gross invoices compared to the very same calendar quarter in 2019.
In 2021, for a quarter to certify for the employee retention credit, you just need to reveal a 20% decline in gross receipts compared to the very same calendar quarter in 2019. So this indicates far more businesses will certify. My business, for instance, experienced a 26% decrease in gross receipts, 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 initially, due to the fact that I got very first round of PPP money and second because 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 qualifies. Likewise, for 2021, for any quarter, you can choose to use the lookback quarter, meaning that, for example, even if your Q1 2021 gross receipts aren't a minimum of 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. Implication here is that if you receive Q1 2021 based on Q1 2021's gross receipts, you will also receive Q2 2021 since you certified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so basically if you simply get approved for Q1 and Q3 2021, you likewise qualify for Q2 and Q4 based upon the lookback. Even if you didn't have an adequate decrease in profits, you can certify for the employee retention credit if you were required to totally or partially suspend operations in your business 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 during that period of full or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying that you require to shut down indoor dining. That is an example of a partial shutdown. Not only are more companies eligible for the employee retention credit thanks to these new laws, making PPP recipients qualified for the employee retention credit though not on the very same earnings and making more services eligible through the 20% decrease threshold rather than the 50% decline limit, however the 2021 credit is also more profitable than the 2020 credit.
This is due to the fact that for 2020, the employee retention credit was equivalent to 50% of all certified earnings for 2020, the employee retention credit was equivalent to 50% of all certified wages you paid employees in between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in salaries for that whole period. So the maximum 2020 credit per staff member was $5,000. Not bad, but that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equal to 70% of certified incomes per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per employee ... for that entire time duration? 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 incomes per staff member per quarter, so we're talking about a maximum credit of $7,000 per worker per quarter. $7,000 times four is $28,000 if you're qualified all 4 quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per worker. That's big. That's a blessing to lots of company owner right now. You see what I mean now, right, how the employee retention credit has gone from ugly duckling in 2020 to lovely swan in 2021? And by the method, by the method, qualified incomes consists of employer-paid health insurance coverage 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 complete PPP forgiveness but also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I just love talking about this things, but 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 simpler to qualify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit initially, since I got first round of PPP money and 2nd because my company didn't suffer that large 50% decrease required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization certifies. Not just are more organizations eligible for the employee retention credit thanks to these brand-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% decline threshold rather than the 50% decrease threshold, but the 2021 credit is likewise more financially rewarding 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 earnings per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in incomes per worker ... for that whole time period?
Just How to Start
That will negotiate on behalf of their customers to obtain the best costs feasible for their existing customers. They will certainly audit old invoices for mistakes getting their clients refunds and also credits.
Assistance offered can include:
Dedicated professionals that will certainly interpret extremely complex program policies as well as will certainly be readily available to answer your concerns, including:
How does the PPP financing aspect right into the ERC?
What are the distinctions in between the 2020 as well as 2021 programs and also just how does it use to your organization?
What are gathering policies for bigger, multi-state employers, as well as just how do I interpret several states executive orders?
Just how do part-time, Union, and tipped workers impact the amount of my refunds?
Detailed examination regarding your eligibility
Extensive evaluation of your claim
Assistance on the claiming procedure as well as paperwork
Details program knowledge that a normal CPA or payroll cpu may not be well-versed in
Rapid and also smooth end-to-end procedure, from eligibility to declaring and receiving reimbursements
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Ready To Start? Its Simple.
1. Whichever business you pick to work with will certainly identify whether your business certifies for the ERC.
2. They will certainly assess your claim and compute the maximum amount you can obtain.
3. Their team guides you through the claiming process, from starting to finish, consisting of proper documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 and right on September 30, 2021, for eligible companies.
You can obtain reimbursements for 2020 and also 2021 after December 31st of this year, into 2022 as well as 2023. And also possibly past after that also.
Many organizations have received refunds, and also others, along with refunds, likewise certified to proceed getting ERC in every payroll they process to December 31, 2021, at around 30% of their pay-roll cost.
Some companies have actually obtained refunds from $100,000 to $6 million.
Do we still certify if we currently took the PPP?
Yes. Under the Consolidated Appropriations Act, businesses can now certify for the ERC also if they already obtained a PPP loan. Note, though, that the ERC will just apply to wages not made use of for the PPP.
Do we still qualify if we did not) sustain a 20% decrease in gross billings .
A federal government authority needed complete or partial shutdown of your company throughout 2020 or 2021. This includes your procedures being restricted by business, lack of ability to take a trip or constraints of team meetings.
- Gross receipt decrease criteria is various for 2020 and also 2021, but is measured versus the current quarter as compared to 2019 pre-COVID quantities:
- A government authority needed partial or complete shutdown of your organization throughout 2020 or 2021. This includes your procedures being restricted by commerce, failure to travel or constraints of team conferences.
- Gross invoice decrease requirements is various for 2020 as well as 2021, yet 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 qualify, your organization must meet either among the complying with criteria:
- Experienced a decline in gross receipts by 20%, or
- Had to transform service procedures as a result of federal government orders
Lots of items are thought about as modifications in organization procedures, consisting of changes in job duties and also the purchase of additional safety tools.