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 Works
This is big, a great deal of small company owners do not understand about this, or they've heard about it, but they do not know much about it, even many tax experts do not know the ins and outs of this thing because it's brand-new and a lot of these changesthat are advantageous to company owners occurred in the middle of tax season. In this video I'm going to dig into the employee retention credit, why it's so lucrative now in 2021, more rewarding, far more lucrative, in reality now than it was in 2020, 5x more profitable at least. Even if you don't own a service, 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 service owner and after you view this video you want 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 e-mail, [email protected], tell me a little about your business and your ballpark year-over-year revenue, and let's see if we can get some more refund in your pocket because you can take this credit against your payroll taxes you pay by lowering your required employment 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 kind here or the Form 941 and all the payroll stuff since that's the stuff your CPA should stress over. In this video I desire to tell you what you need to know so you can go to your CPA and say, "Hey, what about this employee retention credit, why have not you informed me about this?" so you can be informed and take ownership of your own tax situations, of your business's tax circumstance to create more money circulation in your organization and more wealth on your own.
About Employee Retention Credit Irs
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, before I enter this, I want to say that absolutely nothing in this video is to be taken as legal or tax suggestions, this video is for general informative purposes just, yes, I am a CPA and a tax expert, however I am not your CPA nor your tax expert unless you have engaged my firm as such. Another disclaimer here, for purposes of this video I am presuming that if you're enjoying this you are a small company owner, which for employee retention credit purposes suggests one hundred or less staff members for functions of the 2020 credit and five hundred or less workers for functions of the 2021 credit, if you have a company with over 5 hundred employees I imagine 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 work with a local tax professional who is so neck-deep in tax returns today since the government extended the tax deadline to May 17 or volume is just the nature of their business that your tax professional hasn't had the time to dig into the weeds here like I have.
Employee retention credit, why is it so profitable for organization owners in 2021 and why weren't we talking about it in 2020, it's been around because then, considering that the CARES Act? Yes, the employee retention credit has been around given that 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.
Basically the employee retention credit had a glow-up 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 service owners in 2021. Why is the employee retention credit more attractive now thanks to the Consolidated Appropriations Act and the American Rescue Plan Act?
Why Employee Retention Credit Irs
First reason, the employee retention credit for both 2020 and 2021 is now available to PPP receivers, but obviously you can't double dip. You can't get PPP for the hundred thousand dollars you paid your employees and after that turn around and declare the employee retention credit on those incomes too. The federal government does not look too fondly on paying your payroll for you through the PPP and then you claiming a credit versus the taxes you pay the federal government on those wages that the federal government paid for you. So that makes 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 choose the very best covered period that will get you full PPP forgiveness but likewise maximize your employee retention credit.
Likewise, for PPP forgiveness, you desire to fill that payroll pail with as many expenses as possible that don't count for employee retention credit functions. For instance, you can't declare the employee retention credit on state unemployment insurance coverage contributions, but state unemployment insurance contributions count toward PPP forgiveness, see? So you 'd want to dump all your state unemployment insurance coverage contributions on your PPP forgiveness application to leave as much ordinary earnings as possible to take the employee retention credit on.
Another thing to note is you can't deduct the wages you claimed the employee retention credit on, and that makes sense as well, why should the government offer you a reduction for these salaries that they already 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 attractive now than it was last year, and that is that it's easier to qualify for the employee retention credit in 2021.
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 exact same calendar quarter in 2019. So this suggests far more businesses will certify. My service, for instance, 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 receive the 2020 employee retention credit initially, due to the fact that I got very first round of PPP cash and second because my service didn't suffer that big 50% decline required to get approved for 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 choose to use the lookback quarter, suggesting that, for example, even if your Q1 2021 gross receipts aren't at least 20% lower than your Q1 2019 gross invoices, 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 receive Q1 2021 based upon Q1 2021's gross receipts, you will also get approved for Q2 2021 since you certified in the lookback quarter of Q1 2021.
Same thing for Q2 to Q3 and Q3 to Q4, so generally if you just certify for Q1 and Q3 2021, you also certify for Q2 and Q4 based on the lookback. Even if you didn't have an adequate decline in earnings, you can qualify for the employee retention credit if you were needed to fully or partially suspend operations in your company 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 complete or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order mentioning that you require to close 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 brand-new laws, making PPP receivers qualified for the employee retention credit though not on the same earnings and making more services eligible through the 20% decline threshold rather than the 50% decline limit, but the 2021 credit is likewise more lucrative than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all certified earnings for 2020, the employee retention credit was equivalent to 50% of all certified incomes you paid staff members between March 12, 2020, and December 31, 2020, with a limitation of $10,000 in earnings for that entire period. The optimum 2020 credit per staff member was $5,000. Okay, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit amounts to 70% of qualified incomes per employee paid from January 1, 2021 through December 31, 2021, limited to $10,000 in incomes per staff member ... for that whole period? No. Per quarter. For 2021 the percentage is more (70% in 2021 vs. 50% in 2020) and you can take it on up to $10,000 in wages per employee per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. $7,000 times four is $28,000 if you're eligible all 4 quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per employee. That's substantial. That's a godsend to lots of entrepreneur today. So you see what I suggest now, right, how the employee retention credit has gone from awful duckling in 2020 to stunning swan in 2021, right? And by the method, by the way, qualified wages consists of employer-paid medical insurance premiums.
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 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 reason 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, since I got first round of PPP cash and second because my organization didn't suffer that large 50% decline needed to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my organization qualifies. Not only are more services 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 very same wages and making more businesses eligible through the 20% decrease threshold rather than the 50% decline limit, but the 2021 credit is also more rewarding than the 2020 credit.
Not bad, but that's nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of qualified incomes per staff member paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in wages per employee ... for that entire time duration?
How to Get going
The most effective means is to function with a no-risk, contingency-based cost financial savings company. That will certainly negotiate in support of their clients to get the most effective rates possible for their existing customers. They will certainly investigate old billings for mistakes obtaining for their clients refunds and also credits. They can boost the productivity as well as total evaluation of their customers companies.
Assistance offered can include:
Dedicated experts that will interpret very complex program policies and also will be readily available to answer your inquiries, including:
How does the PPP loan aspect into the ERC?
What are the distinctions between the 2020 as well as 2021 programs and how does it relate to your organization?
What are gathering regulations for larger, multi-state employers, and exactly how do I analyze multiple states executive orders?
How do part-time, Union, as well as tipped workers influence the amount of my reimbursements?
Detailed evaluation concerning your qualification
Comprehensive evaluation of your situation
Guidance on the claiming process as well as paperwork
Specific program experience that a routine CPA or payroll cpu may not be well-versed in
Rapid as well as smooth end-to-end process, from eligibility to claiming and also receiving reimbursements
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Ready To Start? Its Simple.
1. Whichever company you select to work with will certainly figure out whether your business certifies and gets approvel for the ERC.
2. They will evaluate your claim and calculate the maximum amount you can receive.
3. Their group guides you via the claiming procedure, from starting to end, including appropriate documentation.
Frequently Asked Questions (FAQs)
What duration does the program cover?
The program started on March 13th, 2020 as well as ends on September 30, 2021, for qualified organizations.
You can obtain reimbursements for 2020 as well as 2021 after December 31st of this year, right into 2022 and also 2023. And also possibly past then also.
Many businesses have received refunds, and others, in enhancement to reimbursements, also qualified to proceed getting ERC in every pay-roll they process through December 31, 2021, at about 30% of their pay-roll cost.
Some businesses have actually received reimbursements from $100,000 to $6 million.
Do we still qualify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, services can now receive the ERC also if they already got a PPP loan. Note, though, that the ERC will just use to salaries not made use of for the PPP.
maintain a 20% decrease in gross billings .
A federal government authority needed complete or partial shutdown of your service throughout 2020 or 2021. This includes your operations being restricted by commerce, inability to take a trip or restrictions of group meetings.
- Gross invoice decrease standards is different for 2020 and 2021, but is gauged against the current quarter as compared to 2019 pre-COVID quantities:
- A government authority called for complete or partial shutdown of your organization during 2020 or 2021. This includes your procedures being restricted by business, lack of ability to take a trip or constraints of group meetings.
- Gross receipt decrease standards is various for 2020 and 2021, but is determined against the current quarter as contrasted to 2019 pre-COVID quantities.
Do we still certify if we continued to be open throughout the pandemic?
Yes. To qualify, your company needs to fulfill either among the following standards:
- Experienced a decline in gross receipts by 20%, or
- Needed to alter service operations due to government orders
Lots of products are considered as adjustments in company procedures, including shifts in work functions and also the purchase of additional protective devices.