Employee Retention Credit Eligibility Requirements – ERC 2021
New changes make the employee retention tax credit easier to get for small businesses that need financial help during the Covid-19 pandemic. Know how your business is eligible for the employee retention credit in 2020 and 2021.
This video is intended for educational purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Freedomtax Accounting and Multiservices Inc. is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience. Freedomtax Accounting and Multiservices Inc. or its members cannot be held liable for any use or misuse of this content.
How the Updated Employee Retention Credit Works
The purpose of the Employee Retention Credit is to encourage employers to keep employees on the payroll, even if they are not working during the covered period due to the effects of the coronavirus outbreak. Here’s what you need to know as an employer to take advantage of this updated credit.
The updated Employee Retention Credit (ERC) provides a refundable credit of up to $5,000 for each full-time equivalent employee you retained between March 13 and Dec. 31, 2020, and up to $28,000 for each retained employee between Jan. 1 and December 2021.
You qualify as an employer if you were ordered to fully or partially shut down or if your gross receipts fell at least 50% for the same quarter in 2019 (for 2020) and at least 20% (for 2021).
If you were not in business in 2019, you could use the corresponding quarters from 2020.
You can claim your employee retention tax credit immediately by reducing payroll taxes sent to the IRS.
If your credits exceed payroll taxes, you can request a direct refund from the IRS.
The new law, retroactive to 2020, now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages not treated as payroll costs in obtaining forgiveness of the PPP loan.
Good news for small business owners. The American rescue plan that was signed yesterday by president Biden extends the employee retention credit to the end of 2021, making additional financial help for small businesses during this coronavirus pandemic. That’s what we’re going to talk about in this video.
Hello from Freedom Tax Accounting, we’re an accounting firm where we have been providing quality tax and accounting services now for over 20 years. If you’re new to this channel, we provide strategies for small business owners so they can achieve their financial goals. Although for the last couple of months we have been concentrating in providing information on PPP, employee retention tax credit, the EIDL loans to help small business owners get the financial help they need to go through this coronavirus pandemic okay.
Now we are recording this video on March recording on any video relating to any one of these PPP, idle, ERC financial help from the SBA or the government because these programs are constantly changing. So, there may be things that we discuss in this video that can change as soon as tomorrow. So, that’s the importance of subscribing to our channel that way you’re always up to date with the most current and correct information regarding these loans from the SBA okay, or the IRS in this case.
Now the good news is that the employee retention tax credit has been extended till the end of 2021. This came out of the American Rescue Plan Act that was signed yesterday by president Biden. If you do not know about the employee retention tax credit, this credit is not new okay. This credit was actually included back in the cares act back in March of 2020. Now, this was a very good credit or is a very good credit for 2020. And if you have seen our videos from last year, we had done a couple of videos back in April and May of 2020 where we were talking about this credit that in some cases it was a better deal than the PPP. But for most smaller businesses the PPP was a better deal, and in 2020 you had to choose. You cannot have PPP and take the employee retention tax credit you had to choose which program to use. And since the PPP was a better deal for uh most the small businesses than a lot of people that’s why the PPP got most of the attention but all of that changed in December when the last stimulus bill that was signed by President Trump in the last week of December in 2020, that changed the rules.
From that stimulus bill that was signed in December of 2020, it allows businesses who got a PPP to go now, and also get the employee retention tax credit and then expanded it for the first two quarters of 2021. So, from January until now in 2021- January, February or March, we have been helping our accounting clients get the most out of this employee retention tax credit and get full PPP forgiveness. And thank god, we have been able to get our clients thousands and thousands of dollars in this payroll tax credit.
Now you can apply for this credit retroactive 2020. So, if you got PPP in 2020 and you did not take the employee retention tax credit in 2020, you may be able [if you qualify] to claim it retroactively.
Now if you don’t know the details on how this program works, watch this video which I am linking here at the top, where my coworker Carmen gives the specifics on how this program works okay.
An Overview basically for you to claim:
Once again, this is only for employers okay; for businesses that have employees on payroll. So, if you’re a self-employed independent contractor and you do not have employees on payroll, this credit does not apply to you okay. And remember, if you’re self-employed or if you’re a business and you pay independent contractors with 1099, those are not considered. Employees okay employees are when your business has employees and you pay them through payroll and you give them a w-2 at the end of the year, okay.
So, for all of the employers that have employees on payroll and you did not get this credit for 2020, you can claim it now retroactive okay. So, it would be a good idea for you to call our office at 407-502-2400, and see if you can get that retroactive employee retention tax credit okay.
Now you first have to meet certain requirements. So, before you call, take a look at your accounting and see you can get this credit for 2020 If you had a government-mandated shutdown. You can get the employee retention tax credit for the wages during the days of the shutdown. Or, check your quarterly accounting for 2020. So, if you have any quarter in 2020 that you can show at least a 50% reduction in revenue compared to the same quarter in 2019, you can qualify for the employee retention tax credit okay.
Now, what’s the good news? Well in December this program was extended for the first two quarters of 2021. And they’re going to make it easier to get; I’m going to talk a little bit more about that. But now, president Biden signed the American rescue plan act yesterday and it extended the employee retention tax credit to the end of 2021. So, this is very good news, and they’re going to make it easier to get compared to 2020. They’re also going to give you a lot more money in 2021. For example, in 2020, you have to show you were shut down by a government mandate or you can show the 15% reduction in revenue for a quarter compared to 2019. But in 2020, the max you can get for an employee is $5,000 because it’s 50% of the wages up to $10,000 in wages; that’s for 2020. So, the max you can get for an employee for 2020 credit is $5000 per employee. But now in 2021 that has changed. Now they’re allowing you to get 70% of the employees’ wages, up to $10,000 in wages per quarter. So, that means that you can get up to $7,000 per employee per quarter. So, for 2021 you can get a total of $28,000 for a payroll tax credit per employee.
So, these are huge numbers, and thank god that we have been able to help a lot of our accounting clients get the max employee retention credit, and also get 100% PPP forgiveness. Remember this in order to achieve PPP forgiveness and get the max employee retention tax credit you have to have a good strategy and it’s very technical because you have to see your quarters, accounting, and when you got the PPP funds because you cannot double-dip. The wages that you use for PPP forgiveness, you cannot use for the ERC. So, there’s a lot of different strategies that we are implementing for our clients. So, if we make sure that they get 100% PPP forgiveness, and get the highest employee retention tax credit available okay. But once again very good news that this program has been extended till the end of the year.
Oh, and I also forgot, for 2021 you don’t have to show the 50% reduction in revenue. You only have to show a 20% reduction in revenue. For any quarter in 2021, you have to show at least a 20% reduction in revenue compared to the same quarter of 2019. So, they’re making this credit easier to get, and they’re getting more money per employee okay.
So really, I hope this has been helpful. OK? You know that we are praying for you. We are praying for you, for your family, for your business. Let’s stay safe. Let’s stay positive. We will get through this. OK? We will get through this together. All right?
Thank you for watching this video. Remember, it is tax season, and we are a full-service accounting firm. We are authorized by the federal government to prepare personal tax returns and business tax returns for individuals and businesses that are located in any of the 50 US states.
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