Comments on: Three Tips for Bigger Employee Retention Credits

By: Solving the Employee Retention Credit Partial Suspension Puzzle - Evergreen Small Business

Thu, 22 Jul 2021 19:39:04 +0000

[…] If you want to look for ways to boost the employee retention credit you qualify for, see this post: Three Tips for Bigget Employee Retention Credits. […]

By: Stephen Nelson CPA

Stephen Nelson CPA — Thu, 22 Jul 2021 16:42:23 +0000

In reply to Jerry Y Seo.

That’s a great question. And fortunately IRS notice 2021-20 answers it pretty clearly. In your example of a $90K PPP loan, the borrower lists $40K of nonpayroll expenses but only $36K of these matter since only 40% of the $90k can be forgiven due to nonpayroll.

That means you need another $56K of payroll-y expenses.

They put down $120K… and you need to treat $56K of that as being “used up”… but that means you have roughly $64K leftover for ERC “generation.”

By: Jerry Y Seo

Jerry Y Seo — Mon, 19 Jul 2021 23:57:56 +0000

Thanks for the article, Stephen. One question. My client qualifies for the ERTC because of the 50% revenue reduction in the 2nd qtr of 2020. Let’s say his 1st PPP loan was $90,000. In his PPP loan forgiveness application he used the 24-week period beginning on 5/1/20. He listed wages of $120,000, rent of $30,000 and utilities of $10,000. I asked him why he listed so much of the wages and he said he just wanted to make sure he was covered. Question is, can I assume that for the forgiveness, $54,000 ($90,000 x 60%) of the wages and $40,000 of rent and utilities were utilized, thus freeing up $66,000 for the ERTC? In other words, by just listing more for the minimum required wages doe that mean that the full amount of listed wages is ineligible for the ERTC?

By: Stephen Nelson CPA

Stephen Nelson CPA — Mon, 19 Jul 2021 22:26:30 +0000

In reply to David. Thank you, David. You're right. That's another incredibly important thing for small businesses to know about. Excellent point.

By: David

David — Mon, 19 Jul 2021 21:56:20 +0000

Great article as usual Stephen. Two additional things you might want to cover in a follow-up blog post:

Recovery startup businesses – a great opportunity for a new business to qualify for the ERC for Q3 and Q4 of 2021 just for being new (started after 2-15-20). It also applies to an existing business that started a new line of business after 2-15-20.

Prior quarter revenue lookback for 2021 – this allows a business to meet the revenue reduction test by looking back at a revenue reduction from the prior quarter. For instance, if a business meets the revenue reduction test for Q1 2021, they can get the ERC for Q1 via the revenue test and for Q2 via looking back to Q1 even if they did not meet the revenue reduction test in Q2. In essence, two quarters for the “price” of one.