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
This is big, a great deal of small company owners do not learn about this, or they've become aware of it, however they do not understand much about it, even numerous tax experts do not know the ins and outs of this thing since it's brand-new and a lot of these changesthat are useful to company owner 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 rewarding now in 2021, more financially rewarding, far more lucrative, in fact now than it was in 2020, 5x more financially rewarding at least. Even if you do not own an organization, be sure to share this video with service owners you know, this video might literally be worth 10s of thousands of dollars for them. And if you are a company owner and after you view this video you desire 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], inform me a little about your service and your ballpark year-over-year income, and let's see if we can get some more cash back in your pocket because you can take this credit against your payroll taxes you pay by reducing your needed employment tax deposits or you can ask for an advance payment of the credit using IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Because that's the stuff your CPA need to stress about, I am not going to get into the complexities of that form here or the Form 941 and all the payroll things. In this video I want to tell you what you require to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you told me about this?" You can be notified and take ownership of your own tax scenarios, of your company's tax scenario to produce more money circulation in your service and more wealth for yourself.
About Employee Retention Qualifications
Alright, now let's dig into this and let's discuss the employee retention credit or the ERC as some folks like to call it, before I get into this, I desire to say that absolutely nothing in this video is to be taken as legal or tax guidance, this video is for general informational functions just, yes, I am a CPA and a tax professional, but I am not your CPA nor your tax professional unless you have engaged my company as such. Another disclaimer here, for functions of this video I am presuming that if you're watching this you are a little business owner, which for employee retention credit functions implies one hundred or less employees for functions of the 2020 credit and five hundred or less staff members for functions of the 2021 credit, if you have a company with over five hundred employees I imagine you have in-house counsel, in-house CPAs who are on top of this stuff, but I'm here for you small company owners who might work with a regional tax expert who is so neck-deep in tax returns right now because the government extended the tax deadline to May 17 or volume is just the nature of their business that your tax specialist hasn't had the time to go into the weeds here like I have.
Employee retention credit, why is it so rewarding for organization owners in 2021 and why weren't we talking about it in 2020, it's been around given that then, because the CARES Act? Yes, the employee retention credit has 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 a lot more attractive. So generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy woman 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 Qualifications
Reason, 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 claim the employee retention credit on those salaries. The government does not look too fondly on paying your payroll for you through the PPP and after that you declaring a credit versus the taxes you pay the federal government on those incomes that the government spent for you. 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 select the finest covered period that will get you complete PPP forgiveness but likewise optimize your employee retention credit.
Likewise, for PPP forgiveness, you desire to fill up that payroll pail with as numerous expenses as possible that do not count for employee retention credit functions. For example, you can't claim the employee retention credit on state unemployment insurance coverage contributions, however state joblessness insurance coverage contributions count towards PPP forgiveness, see? You 'd want to discard all your state joblessness insurance contributions on your PPP forgiveness application to leave as much ordinary 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 federal government give you a reduction for these earnings that they currently provided you a credit for? Alright, sorry for getting a little sidetracked there, I simply like talking about this things, but let's talk about another reason 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.
But in 2021, for a quarter to get approved for the employee retention credit, you only require to show a 20% decrease in gross invoices compared to the exact same calendar quarter in 2019. So this indicates even more businesses will qualify. My company, for instance, experienced a 26% decrease in gross receipts, comparing Q1 2019 to Q1 2021, and it was a similar story in 2015 too.
I didn't qualify for the 2020 employee retention credit initially, due to the fact that I got very first round of PPP cash and 2nd since my business didn't suffer that big 50% decline 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 elect to use the lookback quarter, suggesting that, for example, even if your Q1 2021 gross receipts aren't a minimum of 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. Ramification here is that if you get approved for Q1 2021 based on Q1 2021's gross receipts, you will likewise get approved for Q2 2021 because you certified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you just certify for Q1 and Q3 2021, you also qualify for Q2 and Q4 based on the lookback. Likewise, even if you didn't have an enough decrease in profits, you can get approved for the employee retention credit if you were required to totally or partly suspend operations in your service 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 partial or full shutdown.
Common example, you own a restaurant, and your guv 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 organizations 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 same wages and making more services eligible through the 20% decrease limit rather than the 50% decline limit, but the 2021 credit is also more lucrative than the 2020 credit.
Not bad, however that's nothing compared to the 2021 credit due to the fact that for 2021, the credit is equal to 70% of qualified incomes per worker paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per employee ... for that whole time duration? For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in salaries per employee 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 worker.
If you got PPP and you are qualified for the employee retention credit, then when you do your PPP forgiveness application, you require to choose the best covered duration that will get you complete PPP forgiveness but also optimize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply like talking about this stuff, 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 much easier to certify for the employee retention credit in 2021. I didn't certify for the 2020 employee retention credit initially, because I got first round of PPP cash and second due to the fact that my organization didn't suffer that large 50% decline required to certify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my service certifies. Not just are more companies eligible for the employee retention credit thanks to these new laws, making PPP receivers eligible for the employee retention credit though not on the exact same earnings and making more businesses eligible through the 20% decline limit rather than the 50% decline threshold, but the 2021 credit is also more financially rewarding 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 salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in earnings per staff member ... for that whole time period?
How to Get going
The best means is to collaborate with a no-risk, contingency-based cost savings company. That will discuss in support of their customers to obtain the most effective rates possible for their existing clients. They will examine old billings for errors obtaining for their customers reimbursements as well as credits. They can enhance the profitability and also total appraisal of their customers organizations.
Assistance offered can include:
Devoted professionals that will analyze extremely complex program policies and also will be offered to address your concerns, including:
How does the PPP loan variable right into the ERC?
What are the differences between the 2020 and also 2021 programs and also just how does it relate to your organization?
What are aggregation rules for bigger, multi-state employers, as well as how do I analyze several states executive orders?
How do part-time, Union, and tipped staff members impact the quantity of my refunds?
Comprehensive assessment concerning your eligibility
Extensive evaluation of your situation
Advice on the claiming process and also documentation
Specific program expertise that a regular certified public accountant or payroll processor may not be well-versed in
Rapid and also smooth end-to-end process, from qualification to claiming and obtaining refunds
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|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
|Omega Funding solutions
|Disisaster Loan Advisors
Prepared To Begin? Its Simple.
1. Whichever firm you select to work with will determine whether your company qualifies and gets approvel for the ERC.
2. They will certainly evaluate your case and compute the maximum amount you can obtain.
3. Their group guides you through the declaring procedure, from starting to finish, consisting of proper paperwork.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program began on March 13th, 2020 and right on September 30, 2021, for qualified businesses.
You can make an application for reimbursements for 2020 and also 2021 after December 31st of this year, into 2022 and also 2023. And potentially beyond after that also.
Many companies have received refunds, and others, in addition to reimbursements, also certified to proceed obtaining ERC in every payroll they process through December 31, 2021, at about 30% of their payroll cost.
Some companies 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 now qualify for the ERC also if they currently got a PPP loan. Note, though, that the ERC will only relate to earnings not made use of for the PPP.
Do we still accredit if we did not) incur a 20% decrease in gross invoices .
A government authority called for partial or full closure of your business throughout 2020 or 2021. This includes your procedures being limited by commerce, failure to travel or constraints of group conferences.
- Gross receipt reduction criteria is various for 2020 and 2021, yet is measured versus the existing quarter as compared to 2019 pre-COVID amounts:
- A government authority required full or partial shutdown of your business throughout 2020 or 2021. This includes your procedures being restricted by business, failure to travel or restrictions of group conferences.
- Gross invoice reduction standards is different for 2020 and also 2021, but is measured against the current quarter as compared to 2019 pre-COVID quantities.
Do we still certify if we stayed open during the pandemic?
Yes. To qualify, your organization needs to fulfill either one of the adhering to criteria:
- Experienced a decline in gross invoices by 20%, or
- Had to change service operations as a result of government orders
Lots of products are thought about as modifications in service procedures, consisting of shifts in job functions as well as the purchase of extra safety devices.