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
Even if you don't own a company, be sure to share this video with organization owners you know, this video could literally be worth 10s of thousands of dollars for them. And if you are a business owner and after you see this video you want 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], inform me a little about your organization and your ballpark year-over-year revenue, 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 versus your payroll taxes you pay by reducing your required work 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.
Because that's the stuff your CPA must worry about, I am not going to get into the complexities of that type here or the Form 941 and all the payroll things. In this video I wish to tell you what you need to understand so you can go to your CPA and state, "Hey, what about this employee retention credit, why haven't you told me about this?" so you can be informed and take ownership of your own tax situations, of your organization's tax circumstance to produce more capital in your organization and more wealth on your own.
About Employee Retention Tax Credit Reinstatement Act
Alright, now let's dig into this and let's talk about the employee retention credit or the ERC as some folks like to call it, prior to I get into this, I want to state that 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 expert, but I am not your CPA nor your tax professional unless you have engaged my firm. 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 less workers for functions of the 2020 credit and 5 hundred or less workers for purposes of the 2021 credit, if you have a business with over five hundred staff members I imagine you have in-house counsel, in-house CPAs who are on top of this things, however I'm here for you small company owners who may deal with a local tax professional who is so neck-deep in income tax return today due to the fact that the government extended the tax due date to May 17 or volume is simply the nature of their company 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 service owners in 2021 and why weren't we talking about it in 2020, it's been around since then, given that the CARES Act? Yes, the employee retention credit has actually been around because 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.
But the stimulus expense passed in December, the Consolidated Appropriations Act, in addition to the American Rescue Plan Act, passed in February 2021, made modifications to the ERC making it far more appealing. Generally the employee retention credit had a glow-up in between 2020 and 2021, it went from the nerdy girl with neglected eyebrows and thick glasses and her hair up in 2020 to the belle of the ball for organization owners 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 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 offered to PPP receivers, but of course you can't double dip. You can't get PPP for the hundred thousand dollars you paid your workers and then turn around and declare the employee retention credit on those salaries. 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 finest covered duration that will get you full PPP forgiveness but likewise maximize your employee retention credit.
For PPP forgiveness, you desire to fill up that payroll bucket with as lots of expenses as possible that don't count for employee retention credit purposes. For example, you can't claim the employee retention credit on state joblessness insurance contributions, but state joblessness insurance coverage contributions count toward PPP forgiveness, see? So you 'd desire to discard all your state unemployment insurance contributions on your PPP forgiveness application to leave as much common wages as possible to take the employee retention credit on.
This can get extremely technical really quickly and it's extremely situation specific in terms of optimizing PPP vs. ERC and my firm has tools to figure this things out for you, I'm not going to dig into all that here, however simply know that you really have to do the mathematics when doing your PPP forgiveness to make sure you're not leaving anything on the table in terms of the employee retention credit. Another thing to note is you can't deduct the salaries you declared the employee retention credit on, which makes sense as well, why should the government provide you a deduction for these salaries that they already provided you a credit for? Basically the credit is tax-effected. Alright, sorry for getting a little sidetracked there, I just love speaking about this stuff, but let's speak about another reason that the employee retention credit is more appealing now than it was in 2015, and that is that it's much easier to get approved for the employee retention credit in 2021. In 2020, for a quarter to certify for the employee retention credit, you needed to show a 50% reduction in gross receipts compared to the same calendar quarter in 2019.
In 2021, for a quarter to certify for the employee retention credit, you just require to show a 20% decline in gross invoices compared to the exact same calendar quarter in 2019. This suggests far more organizations will qualify. My company, for example, experienced a 26% decline in gross receipts, comparing Q1 2019 to Q1 2021, and it was a comparable story last year too.
I didn't qualify for the 2020 employee retention credit first, since I got very first round of PPP cash and 2nd because my company didn't suffer that big 50% decline required to qualify for the employee retention credit last year.But for 2021, at least for Q1, yeah, my business certifies. For 2021, for any quarter, you can choose 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 invoices, you can compare for functions of identifying 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 invoices, you will also certify for Q2 2021 since you qualified in the lookback quarter of Q1 2021.
Very same thing for Q2 to Q3 and Q3 to Q4, so generally if you simply get approved for Q1 and Q3 2021, you likewise certify for Q2 and Q4 based upon the lookback. Likewise, even if you didn't have an adequate decrease in income, you can receive the employee retention credit if you were required to totally or partially suspend operations in your company during any calendar quarter in 2020 or 2021 due to state or federal orders, in which case you are eligible for the employee retention credit throughout that duration of full or partial shutdown.
Common example, you own a dining establishment, and your governor signed an executive order specifying that you require to close down indoor dining. That is an example of a partial shutdown. Not just are more services eligible for the employee retention credit thanks to these brand-new laws, making PPP recipients qualified for the employee retention credit though not on the very same wages and making more companies eligible through the 20% decline limit rather than the 50% decrease limit, however the 2021 credit is likewise more rewarding than the 2020 credit.
This is since for 2020, the employee retention credit amounted to 50% of all certified salaries for 2020, the employee retention credit was equal to 50% of all certified earnings you paid employees between March 12, 2020, and December 31, 2020, with a limit of $10,000 in wages for that whole time duration. The optimum 2020 credit per worker was $5,000. Not bad, however that's absolutely nothing compared to the 2021 credit due to the fact that for 2021, the credit is equivalent to 70% of certified incomes per worker paid from January 1, 2021 through December 31, 2021, limited to $10,000 in wages per employee ... for that whole 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 employee per quarter, so we're talking about an optimum credit of $7,000 per staff member per quarter. $7,000 times 4 is $28,000 if you're eligible all 4 quarters. That's right, folks, the maximum 2021 employee retention credit is $28,000 per staff member. That's substantial. That's a godsend to lots of company owner today. So you see what I suggest now, right, how the employee retention credit has gone from ugly duckling in 2020 to lovely swan in 2021, right? And by the way, by the method, qualified salaries 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 select the finest covered period that will get you full PPP forgiveness but also maximize your employee retention credit.
Alright, sorry for getting a little sidetracked there, I simply love talking about this things, however 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 simpler to certify for the employee retention credit in 2021. I didn't qualify for the 2020 employee retention credit first, since I got first round of PPP money and second since my company 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 only are more organizations eligible for the employee retention credit thanks to these new laws, making PPP receivers qualified for the employee retention credit though not on the same salaries and making more services eligible through the 20% decline limit rather than the 50% decline threshold, however the 2021 credit is likewise more profitable than the 2020 credit.
Not bad, however that's absolutely nothing compared to the 2021 credit since for 2021, the credit is equivalent to 70% of qualified salaries per employee paid from January 1, 2021 through December 31, 2021, restricted to $10,000 in salaries per worker ... for that whole time period?
How to Get going
The very best means is to function with a no-risk, contingency-based expense financial savings business. That will discuss in support of their customers to get the ideal rates feasible for their existing customers. They will certainly audit old invoices for mistakes obtaining for their customers reimbursements and credits. They can enhance the productivity as well as overall assessment of their customers organizations.
Assistance offered can include:
Committed experts that will interpret very complicated program rules and will certainly be available to answer your inquiries, including:
Just how does the PPP loan aspect into the ERC?
What are the differences between the 2020 as well as 2021 programs and how does it use to your company?
What are aggregation guidelines for larger, multi-state companies, and just how do I analyze multiple states executive orders?
How do part-time, Union, as well as tipped employees influence the amount of my refunds?
Complete evaluation concerning your qualification
Thorough analysis of your claim
Assistance on the claiming procedure and also paperwork
Particular program expertise that a routine certified public accountant or payroll cpu might not be well-versed in
Smooth as well as fast end-to-end process, from eligibility to claiming as well as obtaining reimbursements
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|Finance Pro Plus
|Bottom Line Concepts
|Equifax Workforce Solutions
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|Disisaster Loan Advisors
Prepared To Start? Its Simple.
1. Whichever firm you pick to work with will certainly establish whether your service certifies and gets approvel for the ERC.
2. They will certainly examine your request and also compute the maximum quantity you can receive.
3. Their group guides you via the asserting procedure, from starting to finish, including correct paperwork.
Frequently Asked Questions (FAQs)
What period does the program cover?
The program started on March 13th, 2020 and right on September 30, 2021, for qualified employers.
You can use for refunds for 2020 and also 2021 after December 31st of this year, right into 2022 and also 2023. And potentially beyond after that too.
Many organizations have received reimbursements, as well as others, in enhancement to reimbursements, likewise certified to proceed receiving ERC in every pay-roll they process through December 31, 2021, at about 30% of their pay-roll cost.
Some companies have actually obtained refunds from $100,000 to $6 million.
Do we still certify if we already took the PPP?
Yes. Under the Consolidated Appropriations Act, organizations can now receive the ERC also if they already got a PPP financing. Note, though, that the ERC will only put on incomes not used for the PPP.
sustain a 20% decline in gross invoices .
A government authority needed partial or complete shutdown of your service during 2020 or 2021. This includes your procedures being limited by commerce, lack of ability to take a trip or restrictions of group conferences.
- Gross invoice reduction standards is different for 2020 as well as 2021, but is gauged versus the current quarter as contrasted to 2019 pre-COVID quantities:
- A federal government authority called for partial or complete closure of your organization during 2020 or 2021. This includes your operations being restricted by commerce, failure to take a trip or constraints of team conferences.
- Gross receipt reduction standards is different for 2020 and 2021, but is measured against the current quarter as contrasted to 2019 pre-COVID amounts.
Do we still qualify if we stayed open during the pandemic?
Yes. To qualify, your business needs to satisfy either one of the adhering to standards:
- Experienced a decrease in gross invoices by 20%, or
- Had to transform company procedures due to government orders
Numerous products are considered as modifications in organization procedures, consisting of changes in work roles and also the acquisition of added safety equipment.