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 Functions
Even if you do not own a company, be sure to share this video with organization owners you understand, this video might literally be worth 10s of thousands of dollars for them. And if you are a service owner and after you watch this video you desire 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 email, [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 due to the fact that you can take this credit against your payroll taxes you pay by reducing your needed employment tax deposits or you can request an advance payment of the credit using 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 stuff since that's the stuff 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?" so you can be notified and take ownership of your own tax circumstances, of your company's tax circumstance to generate more capital in your company and more wealth for yourself.
About Employee Retention Program
Alright, now let's go into this and let's discuss the employee retention credit or the ERC as some folks like to call it, prior to I get into this, I desire to state that absolutely nothing in this video is to be taken as legal or tax guidance, this video is for general informative functions just, 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 firm as such. Another disclaimer here, for functions of this video I am assuming that if you're seeing this you are a little business owner, which for employee retention credit purposes indicates one hundred or fewer workers for functions of the 2020 credit and 5 hundred or less workers for functions of the 2021 credit, if you have a business with over 5 hundred staff members I envision you have in-house counsel, in-house CPAs who are on top of this stuff, however I'm here for you little business owners who may deal with a local tax professional who is so neck-deep in tax returns right now since the federal government extended the tax deadline to May 17 or volume is just the nature of their company 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 discussing 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 in 2015? Well, let's back it up. Yes, the employee retention credit has 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 because of the PPP, the Paycheck Protection Program. Originally, in 2020, if you got a PPP loan as an employer, you were not qualified for the employee retention credit.
The stimulus bill 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 essentially the employee retention credit had a glow-up in between 2020 and 2021, it went from the unpopular girl with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for company owner 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 inform you why, a couple of reasons.
Why Employee Retention Program
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 workers and after that turn around and declare the employee retention credit on those salaries also. The federal government does not look too fondly on paying your payroll for you through the PPP and then you declaring a credit versus the taxes you pay the government on those incomes that the government spent for you. So that makes sense. Now, there's some planning 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 pick the very best covered period that will get you full PPP forgiveness but likewise optimize your employee retention credit.
For PPP forgiveness, you want to fill up that payroll bucket with as numerous expenses as possible that don't count for employee retention credit functions. For instance, you can't declare the employee retention credit on state joblessness insurance contributions, but state unemployment insurance coverage contributions count towards PPP forgiveness, see? You 'd want to discard all your state unemployment insurance 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 deduct the earnings you declared the employee retention credit on, and that makes sense as well, why should the government offer you a deduction for these salaries that they currently provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply enjoy 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 easier to qualify for the employee retention credit in 2021.
However in 2021, for a quarter to get approved for the employee retention credit, you only require to reveal a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. This means far more businesses will certify. My organization, for example, experienced a 26% decrease in gross invoices, comparing Q1 2019 to Q1 2021, and it was a similar story last year too.
So I didn't get approved for the 2020 employee retention credit initially, because I got first round of PPP cash and second due to the fact that my company didn't suffer that big 50% decline needed to receive the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. Likewise, for 2021, for any quarter, you can elect to utilize 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 invoices, you can compare for functions of determining 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 likewise receive Q2 2021 because you certified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so essentially if you just certify for Q1 and Q3 2021, you likewise receive Q2 and Q4 based upon the lookback. Also, even if you didn't have an enough decline in revenue, you can get approved for the employee retention credit if you were required to completely or partly suspend operations in your organization 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 during that period of partial or full shutdown.
Common example, you own a dining establishment, and your guv signed an executive order stating that you need to shut down indoor dining. That is an example of a partial shutdown. Not just are more companies qualified 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 companies eligible through the 20% decrease limit rather than the 50% decrease threshold, but the 2021 credit is also 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 amounted to 50% of all certified wages you paid workers between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in earnings for that entire period. The maximum 2020 credit per staff member was $5,000. Not bad, however that's nothing compared to the 2021 credit because for 2021, the credit is equal to 70% of certified wages 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? 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 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 four quarters. That's right, folks, the optimum 2021 employee retention credit is $28,000 per staff member. That's huge. That's a blessing to lots of entrepreneur right now. So you see what I mean now, right, how the employee retention credit has gone from unsightly duckling in 2020 to gorgeous swan in 2021, right? And by the method, by the method, certified salaries includes employer-paid health insurance premiums.
If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you need to select the best covered period that will get you complete PPP forgiveness however also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply enjoy talking about this stuff, however let's talk about another factor 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 qualify for the 2020 employee retention credit first, since I got very first round of PPP cash and 2nd due to the fact that my business didn't suffer that big 50% decrease needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business qualifies. Not only are more services eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the same salaries and making more companies eligible through the 20% decline limit rather than the 50% decrease threshold, but the 2021 credit is also 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 qualified salaries per staff member paid from January 1, 2021 through December 31, 2021, limited to $10,000 in earnings per worker ... for that whole time duration?
Exactly How to Begin
The best method is to collaborate with a no-risk, contingency-based cost financial savings firm. That will certainly negotiate on behalf of their customers to get the finest costs feasible for their existing clients. They will certainly investigate old invoices for mistakes getting their customers refunds and credits. They can enhance the success as well as general evaluation of their customers companies.
Assistance provided can include:
Committed specialists that will certainly analyze very intricate program policies and will certainly be available to address your inquiries, including:
Exactly how does the PPP financing aspect into the ERC?
What are the distinctions between the 2020 as well as 2021 programs as well as just how does it use to your company?
What are gathering guidelines for bigger, multi-state employers, as well as exactly how do I analyze numerous states executive orders?
How do part-time, Union, as well as tipped employees influence the quantity of my refunds?
Comprehensive examination regarding your eligibility
Detailed evaluation of your situation
Support on the declaring process and documentation
Particular program competence that a routine certified public accountant or pay-roll processor might not be well-versed in
Smooth and also fast end-to-end process, from qualification to claiming as well as obtaining refunds
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Ready To Obtain Begun? Its Simple.
1. Whichever business you choose to work with will determine whether your organization qualifies for the ERC.
2. They will evaluate your claim as well as compute the optimum amount you can get.
3. Their team guides you through the declaring process, from beginning to end, including appropriate documentation.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program began on March 13th, 2020 as well as right on September 30, 2021, for eligible businesses.
You can request reimbursements for 2020 and 2021 after December 31st of this year, right into 2022 as well as 2023. As well as possibly beyond after that also.
Many companies have received reimbursements, as well as others, along with refunds, also qualified to continue getting ERC in every payroll they process to December 31, 2021, at about 30% of their pay-roll expense.
Some companies have obtained reimbursements from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can currently qualify for the ERC also if they already received a PPP car loan. Keep in mind, though, that the ERC will only relate to earnings not utilized for the PPP.
Do we still certify if we did not) sustain a 20% decline in gross receipts .
A government authority required partial or full shutdown of your service throughout 2020 or 2021. This includes your operations being restricted by business, failure to travel or restrictions of group conferences.
- Gross receipt decrease standards is various for 2020 as well as 2021, however is determined against the current quarter as compared to 2019 pre-COVID quantities:
- A government authority needed partial or complete closure of your company during 2020 or 2021. This includes your operations being limited by commerce, failure to travel or restrictions of team conferences.
- Gross invoice decrease requirements is different for 2020 and 2021, yet is measured against the present quarter as contrasted to 2019 pre-COVID amounts.
Do we still certify if we remained open during the pandemic?
Yes. To certify, your service must satisfy either one of the following standards:
- Experienced a decrease in gross invoices by 20%, or
- Needed to change service procedures due to government orders
Several products are taken into consideration as modifications in company procedures, including shifts in job roles and also the acquisition of added safety devices.