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Hello, I’m Donna Bordeaux with CalculatedMoves.com. In the bill that just passed at the end of December, there are some things you need to know about more than just the second round of the PPP. There’s also an extension of the Employee Retention Credit. We’ll call it ERC for short, but it was around since the COVID crisis started in March. And it has now had some new eligibility issues. Nobody looked at it before, because if you took PPP money, the first go-round, you weren’t eligible for it, but those rules have changed. Now you could be based on the test. We’ll talk about, so watch out though, when you’re in the rush to get your second PPP in round two, you want to make sure that we don’t have overlapping costs in the employee retention credit. First, let’s talk about the retention credits extension and what that means it is now, as I mentioned, in addition to the PPP, the Payroll Protection Program, however, you can’t use the same wages.
So you want to make sure that if you had, all of your wages, used up by your PPP money, then you don’t have wages left over to take the employee retention credit. But I’ll mention a few little things that may go along with that later for now. Just know that you can’t double-dip. You can’t use the wages that you were going to use for PPP forgiveness for the ERC credit too. It is, was set to expire at the end of 2020, but it’s been extended through June 30th of 2021. You’ll get it in the form of a refundable payroll tax credit that gets reported on your payroll. Quarterly return the 941. Now, when we say refundable, that means that you can get the money back. So if your payroll taxes were $5,000, but your employee retention credit was $7,000. You will get the $2,000 back in the form of a refund. Here’s some confusing parts. Nothing ever comes out of our government. That’s nice and simple. So there’s some different rules for 2020 versus 21 eligibility by quarter using the shutdown test or a reduction in revenue are how you’ll determine if you are eligible.
So for 2020, you’ll be able to deduct 50% of your wages up to $5,000 per employee per year. When I stress that year, we’ll talk about 2021 in a moment cause that’s going to change. So that means that if you paid an employee $10,000, you could get $5,000 back. If you qualify for the ERC, only the first $10,000 of payments to each employee matters here. So if you paid one employee, a hundred thousand dollars in another one, $2,000, that person who used the $100,000 only qualifies to the extent of their first 10,000 in wages,
In small businesses, doesn’t apply that much, but if you have over a hundred employees, you can only use the wages that you paid to employees who were not working. So otherwise, it could be for people who were working or not working in your business.
All right, let’s jump ahead to 2021
Some big changes. So this gets a lot better in 2021, you can now use 70% of wages are up to $7,000 per employee per quarter. Remember that back here in 2020, it was per year. So that was $5,000 per employee max in the quarter here. That means that you could take 7,000 for the first quarter and 7,000 for the second quarter or $14,000. Assuming you qualify only the first $10,000 of payments still counts, same way. And next for the larger employers, it has to be over 500 employees to pay them only when they’re not working. I don’t think that matters much to my small business folks, but if you’re in a larger situation, that could be a big difference. All right, so let’s talk about how you qualify two tests. First. There’s the Shutdown Test. If there was a government order that limited you from being open, but partial or fully, that is the shutdown test.
That means that you were not allowed to be open and you had orders from that government authority. There’s a lot more detail to this. So if that applies and that’s the only way you apply, you’ll want to look at the detailed examples to make sure that you qualify. If it was a fully or partially suspended option that you received orders from the government authority, you don’t have to meet both of these, just one. The Gross Receipts Test is different, of course, for 2020 and 2021. So in 2020, this is the part that’s retroactive that you didn’t know about before just came into play starts with 50% decline in your gross receipts from the same quarter in 19 to 2020. So if you made, if your revenue was a $100,000 in 2019 for the second quarter, and in 2020, for that second quarter, you only had 40,000 in revenue.
That means you had a 50% or more decline in your receipts for that quarter, the same quarter from the prior year, you will then remain eligible as long as you remain in a 20% decline. And you get to include one more quarter on the end. So for most folks, if you had that substantial of a decline, you’re probably going to be carrying this all the way through to June is my suspicion, but that’s the test that you have to meet. Okay? So that’s 2020, let’s move on to 2021. The rules get easier in 2021. You just have to have a 20% decline compared to 2019 in that same quarter. So not 2020, but 2019. So if you’re looking at the first quarter of 2021, you would be comparing your receipts in Q1 of 2021 to Q1 of 2019. To see if you had a 20% decline. If you didn’t pass that test, you could still pass the test if the preceding quarter. So if you’re in quarter one right now, if, in the fourth quarter of last year, you had a 20% reduction. There are some questions still waiting for answers, but that could be awhile. All right? So those are the two tests, the shutdown test, and the gross receipts test.
So what are your next steps, next steps first off, if you’re not sure if you qualify for the ERC or the PPP, you can complete a form on our website now for our VIP clients, we’ve done that for most all of you already, but if you have other friends who have businesses or you own other businesses, please go out to CalculatedMoves.com/ppp2erc. And there’s a form there that you can fill out with your grocery seats and your test. And it will tell you what quarters you passed on or failed on because those rules are very confusing. So use our tool and help send it out to others. After that, I’ll remind you, please do not apply for PPP one forgiveness. Don’t be in such a hurry, the deadline for most everybody isn’t until the fall of 2021. So you have a long time and there are a lot of fluctuations in these rules. It’s getting easier. So hold on, make sure that you don’t miss out on anything. For example, in some of the rules, if you already applied for forgiveness, you may miss out on that employee retention credit, because we don’t know how to assign wages if they overlap.
And next up, give consideration of maximizing your ERC prior to applying for the PPP2. So, as we mentioned earlier, you cannot overlap and use the wages towards the ERC and the PPP when we’re dealing with the forgiveness aspect. However, there are more open rules about what you can use for the PPP forgiveness, with your rent and utilities, and some other expenses there that are now added in. I think you ought to maximize the ERC as much as you can, based on your eligibility. Use the rest of the funds towards your PPP and heaven forbid, let’s say that you don’t have enough wages to cure problems and get full forgiveness. Your absolute worst case is that that money is due back. It must be paid back. It’s a loan at 1%. How bad could that be? That’s probably the lowest debt you’ll ever see in a business. So I urge you to go ahead and take a look and make sure that, you know, if you qualify for these qualifying for the ERC and setting that up for 2020 is a still a little open here we can qualify, but it appears we may have to amend all of the quarterly 941s from the prior year.
There’s a little loophole might be that we can just amend the fourth quarter. We’re waiting to find out details on that. Those should be out by the end of January. So if you’re concerned that the PPP2 will run out of money, you can go ahead and take that, but understand that it may overlap with the ERC when you’re applying for the PPP2, if we still have a 24-week window, and you can wait, you can apply for that up until March. Assuming you don’t think that it’s going to run out, that could give you time to use up the ERC credit and then have wages that fall after June 30th, where they won’t possibly overlap with that credit. So if you have odd questions about that particular situation, that is definitely something that we can help with and dive into further many businesses will be eligible for the new and improved ERC credit.
These changes are retroactive into 2020, and they run through June 30th. Keep in mind that you can’t overlap those wages and use them for both PPP forgiveness and the ERC. So make sure you’ve got a plan in mind for your particular business. I’m Donna Bordeaux with Calculated Moves. Please let us know if there’s anything that we can do to help manage this confusing process. And there will be more details coming. Follow us on social media, make sure you’re following our Calculated Moves page and subscribing to our YouTube page where we’ll put up future updates. Thank you.
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.