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Employer don't forget the employee retention credit

  Sanjiv Gupta CPA  Published 
Employer don't forget the employee retention credit

Employee Retention Credit:   Business owners/Employers might be losing $10K or more if they have not considered taking advantage of the employee retention credit.

If you guys remember, in the march of 2020, Congress passed a Cares Act. And most businesses took advantage of Paycheck Protection Program commonly known as PPP. 

I think every business owner is more or less familiar with this particular program (PPP). 

But I think a lot of people don't know about this second program that Congress has authorized to help business owners, commonly known as employee retention credit. Now, when the cares Act was passed in March 2020, you could either do PPP, or you could do employee retention credit, you couldn't do both.

But the good news is that Congress has now amended that law.  Business owners can now take advantage of both, meaning you can participate in PPP and take advantage of employee retention credit. So that's a great news for business owners who actually have employees. 

Let's look at some of the requirements for claiming employee retention credit. 

In the Cares Act, a refundable tax credit was given for the employer portion of the Social Security tax equal to 50% of wages paid to your employee, on or after March 30 2020, through December 31 2020. 

You are eligible for this credit, if the US government or your state government or,  any other authority has shut down your business for a quarter or more due to Covid 19.

 I think almost all business meet that requirement. 

And the second requirement was that your gross receipts for that calendar quarter was less than 50% of gross receipts from the same quarter in the 2019. 

The maximum credit you can claim for 2020 was $10,000 per employee/year.

So that's the that's the max number but obviously, how much you can claim depended upon how many employees you had, how long your business was suspended, and so forth. 

Recent amendments by congress now allows business owners to include the group health plan expenses as qualified wages. For example, you might be a business where you were not paying employee, because you were shut down, but still you were still paying for the health insurance, guess what, that is still an expense, and you can still count it as a qualified wage. So that was a new addition. 

I already mentioned to you that if you are a PPP loan recipient, even then you can actually take advantage of employee retention credit as well. So that brings me to the most important point that many business owners are not aware of employee retention credit, and they will probably forget to take advantage of this. So if you are one of those then

Please do talk to your tax professional, especially if you have not claimed employee retention credit, talk to them and ask them how can you claim it, let them do some calculations for you, and see if you qualify for it. Now, obviously, if you are working with our firm, then you can definitely call our office and we can help you out with that as well. But please do not let it go without being checked. So please, please definitely take a look at this.

Now, I do want you to also understand that Congress has extended the employee retention credit to wages paid through June 30 2021. So that's the key date I want you to to remember June 30 2021. So don't Forget that for the last two quarters in 2021. Congress increased the credit amount and made it easier for business owners to claim that credit. They did put some changes in place to help you out for example, that credit rate was increased from 50%. And now up to 70% of qualified wages so that's pretty good. 

The maximum credit wage amount increased to $10,000 per employee per quarter. Previously it was $10,000 per year, so you can imagine that's a huge difference.

. If you

gross receipts for a calendar quarter are less than 80% of gross receipts from the same quarter in 2019. Now many of you guys might compare that with the second installment

PPP loans. So if you, you have taken advantage of it or if you're thinking about it, the second installment of being pee pee loan is sort of the forgiveness program is based on that. That means you have to have a 

You know loss of 25% or more in any given quarter So, so it's a very similar kind of a principle here. Now, if you don't like this you can also elect to qualify for a quarter by comparing the gross receipts or immediately preceding quarter to the corresponding quarter in 2019. So they're giving you a lot of options. 

So once again, running Some of these numbers can be a bit challenging. So I would strongly recommend that you speak with them. your CPA or accountant to have them do the math and see which option might be best for you. 

So let's  review what we just talked about today. 

The biggest takeaway from today's program is that if you have taken PPP loan and you have ignored the employee retention credit, then you must take a look at that because you might be leaving money on the table. So that is very, very important. 

 Second thing is the wages paid from March 13 2020 to December 31 2020, can qualify for a retroactive credit. So once again, for many business owners that might be difficult to digest. So you probably need a little bit of help from your accountant or CPA to figure that out wages paid from January 1 2021 to June 30 2021 can also qualify for more credit, like we discussed earlier as well. So this is something cool. 

For 2021 quarters, you qualify for the credit if your gross receipts for a calendar quarter are less than 80% of gross receipts from the same quarter in tax year of 2019. So once again, just want to remind you guys, this is not same as second installment for PPP loans, because in the second installment of PP loans, the you have to have a loss of 25% or more, but here they are talking about 80%. So just be aware of that. So those are some of the important changes. 

So please, if you have not taken advantage of employee retention credit, then definitely reach out to our office and we'll be happy to help you with that. Thank you so much for listening in and we'll talk to you soon