Watch Our Webinar For All Employers! The Employee Retention Tax Credit

Streamed: Wednesday, March 31, 2021
Duration: 1 hour
Language: English

 


 

About This Webinar

Employee Retention Credit

The Employee Retention Credit is a CARES Act relief measure for businesses. It is a fully refundable tax credit that eligible employers who are able to keep employees on payroll can claim.

How much is the credit?

The maximum credit per full-time employee per quarter is $7,000 through December 2021; up to $28,000 per eligible employee.

Do you qualify for the credit?

 


 

Webinar Transcript

Elizabeth Prehn:
Okay. Welcome everyone. I’m your host Elizabeth Prain. I’m a lawyer with Moskowitz LLP. A tax law form. And we welcome to our presentation on the Employee Retention Credit signed into law recently under the American Recovery Act. Steven Cliff will be presenting. Steve founded Moskowitz LLP because he saw a need to advocate for individuals and businesses. 30 plus years he is still doing this along with his team of tax attornies and tax professionals. Our managing partner Cliff Capdevielle has been essential in navigating the numerous recent changes to the tax code. And without further ado, Steve.

Steve Moskowitz:
Thankyou very much Liz. And I’m really excited about this Employee Retention Credit and you should be too. And let me give you a little bit of the history. Going into all recent history. Goes back to the beginning of the pandemic. When the PPP, the Paycheck Protection Program first came out, the government said “Choose between PPP and ERC.” Employee Retention Credit. And most people chose PPP. Then on December 27th of 2020, the Congress said “Only kidding. Even if you took PPP, you’re not [inaudible 00:01:25] yourselves disqualified from getting ERC. There’s other requirements but now you may be able to benefit and you can get as much as a credit.” Now, it’s not a deduction, it’s a credit. So, if you have a $5000 credit that means the Government gives you $5000.

Steve Moskowitz:
So, they said “Okay. For 2020, you can go ahead and get a max of $5000 per employee.” So, for example if you had 10 employees that would be 50 grand. Then, the Congress said “You know, let’s extend that to the first two quarters of 2021.” And then, on March 11, President Biden signed a new law and said “Only kidding about that too. Now it’s going to apply for the four quarters of 2021.” So, compare and contrast with the 2020. It’s five grand for the year max. With 2021, it’s seven thousand max per quarter. So, that’s $28,000 per employee per year. So, for example, if you had 10 employees, that means the government would give you $280,000.

Steve Moskowitz:
But the benefits keep on coming because if you’ve already paid your payroll taxes, that’s okay. You need to file and amended 941. The payroll tax form. And because of all these changes the government has recently amended the 941 three times. Count them. Three. So, you can get back payroll taxes that you paid previously. And then the government said “You know what?” They’re going even further. They’re going to give you an advance on this if you ask for it and you otherwise qualify. And what happens now is rather than paying your payroll tax you can take the credit instead and retain your cash.

Steve Moskowitz:
So, suppose for example. I’ll make up a number. Suppose for example you were entitled to a credit of 100 and in the filing you’re making you would normally pay the IRS 30. You say “Okay IRS. I’m going to claim 30 of my 100 credits. So, I’m going to give you zero instead of the 30 and you’re going to give me 70.” So, the bottom line is, this is tremendous, but like everything else, they’re qualifications. And you’ll see that in 2020 you had to have a dip of 50 percent but 2021 you only need a dip of 20 percent. And also, another big thing is moving from $5000 a year to $28,000 a year. There’s so much here and again, if you had PPP. We have to imagine the PPP. Because with PPP in order to 100 percent forgiveness you had to spend at least 60 percent on payroll. But that leaves 40 percent on other qualified expenses. For example, rent, health care.

Steve Moskowitz:
So, what happens. We say “Okay. I want to go ahead and manage this because I’m going to ask for forgiveness. But I want to manage it in a way to maximize my Employee Retention Credit. And remember, that originally when PPP came out you had to spend the money in eight weeks but then the government said “No. You can have 24 weeks.” So, what you want to do is first manage what you’re spending the PPP on and then over what period of time to what spread it out. So, you can maximize your ERC.

Steve Moskowitz:
The bottom line is, and this is free money. So, what that means is when the government gives you the money there’s no tax on it. And then, when you go ahead and you spend it on the appropriate expenses, you get a tax deduction. And initially when the PPP came out the IRS said “Well, this is free money so no deduction for you.” And then the Congress came in and said “Well, what are you talking about IRS? This wasn’t the intention of Congress. Yes, of course you can have a deduction.”

Steve Moskowitz:
So, one of the things I want to warn you about. If you decide to research some of this on your own on the web, be very, very careful. Because these things have changed and changed and changed again. And when I look at it, I say “Well, if I wasn’t already familiar with it, there’s a lot of information on the web.” But even though a lot of it’s recent information, even that is outdated. So, that’s why I’d say “Pay careful attention to our webinar and if you compare and contrast, remember there’s been a lot of recent changes.” And on that happy note, I’d like to turn things over to my friend and colleague Attorney Cliff Capdevielle. Cliff. Take it away.

Cliff Capdevielle:
Thanks Steve. Picking up on your point. This is really a work in progress. We don’t have much guidance with regard to this latest round of Employee Retention Credit changes that came about with the American Rescue Plan. We’re wading that. So, there’s an asterix here. Check in with us regularly because there will no doubt be changes as we go throughout the year. So, with that let’s dig in here.

Cliff Capdevielle:
So, as Steve mentioned that the first issue really is to figure out if you’re an eligible employer. So what does that take? Well, very little. Almost everybody who has employees is potentially eligible for the credit. So, what does that mean? It’s means that you’re carrying on a trade or business that’s defined in the IRS code as actively participating in a enterprise that is intended to make money. So, we’ll get into those details in a bit. But the criteria one is that you’re actually in business. It’s not a hobby. Number two. That either your business was suspended due to a governmental order. And we’ll talk about what constitutes a governmental order for this reason. And the third is whether or not your quarter in question meets the criteria of a significant decline in receipt.

Cliff Capdevielle:
As Steve mentioned that is different for 2020 compared to 2021. The base year for all these calculations is 2019. So, if you come to us for consultation make sure you have your 2019 tax return with you. And that’s going to be what we use for all these calculations. So, for 2020, for the fourth quarter, we’re talking about doing an amended return. Now we’re going to compare your fourth quarter 2019 to your fourth quarter 2020. If you had a significant decline that’s defined in 2020 as a 50 percent drop in gross receipts, then you’re going to meet the significant decline prong of this test.

Steve Moskowitz:
[crosstalk 00:08:58] Or if the government closed you up. Remember it’s one or the other.

Cliff Capdevielle:
Yeah. Still, again, three prong test here that you’re carrying on a business that the government shut you down or that you had a significant decline in gross receipts.

Cliff Capdevielle:
So, what is a trade or business? This is. Internal Revenue Code Section 1. 62 defines it as an activity whose principal purpose is to make money. Now, why is that important? Because sometimes people have alleged that they’re in business when really it’s a disguised hobby. It’s unlikely that that’s going to come into play much. Because if you don’t have significant gross receipts in 2019 then you’re not going to be eligible at all. So, you’ve got to be in business to make money.

Cliff Capdevielle:
So, what does that mean? We often see this in context of a rental activity. Whether or not this rises to a level of a trade or business versus being a totally passive activity. So, in general this is what you imagine carrying on a business would be. Be that you have a set of books and records. You keep track of those records contemporaneously. You keep track time associated and the dates on which you performed those services and who performed the services. So, this is important.

Cliff Capdevielle:
Whether it’s you hired independent contractors or employees. And for the most part in this analysis for the Employee Retention Credit we’re talking about [inaudible 00:11:02] employees. But essentially big picture is, this is something that you’re actively engaged in. It’s not a passive activity without employees. If it’s purely passive activity per investment, you’re not going to be eligible for the credit.

Cliff Capdevielle:
This comes up in the context of the Section 199. A qualified business income deduction that you probably heard about in the past couple of years. But the activities for real estate business that would qualify you for a trade or business would be advertising, negotiating leases, collection of rent, the sort of daily operation and maintenance, repairs of the property, purchasing supplies and materials to make those repairs and supervising employees or independent contractors. If you meet those tests then you almost certainly would qualify as a trade or business and any payments you made to employees would therefore potentially be eligible for the Employee Retention Credit, assuming that you were able to also prove a significant decline in revenues.

Cliff Capdevielle:
What is not going to qualify? So, if these are your only activities you will not qualify for as a trade or business. That’s going to be arranging for financing, reviewing financial statements, planning for capital improvements, for traveling to and from real estate. Now, some of those may be deductible. So, just to clear, that doesn’t mean these aren’t deductible on your Schedule E for your rental property. But these are not going to qualify as activities that elevate you to a trade or business for the purpose of the Employee Retention Credit.

Steve Moskowitz:
Well, here’s the way I liken it. Do you get your hands dirty? Are you sitting back in the office looking at reports? Is different than your walking around collecting the rent, it’s how they’re doing, painting the wall and fixing the sink.

Cliff Capdevielle:
Exactly. When we do the calculation to show significant decline in gross receipts of course we need to know what constitutes gross receipts. So, how does the IRS calculate gross receipts for the purpose of the Employee Retention Credit? It’s going to include obviously anything that any money that you receive in exchange for services or sales. It also includes, however, any investments, interest, dividends, rent, royalties etc. So, little, nuance here. If you got a million dollars in your operating account and it’s earning the interest, guess what? You get to count that in the gross receipts test.

Cliff Capdevielle:
Not reduced by cost of goods sold. So this makes a big difference for businesses that are selling goods. So, if you’re gross receipts are 10 million and your cost of goods sold is nine million, what do you use for gross receipts? It’s going to be your 10 million. It’s not reduced by the cost of goods sold. So, giving an example, if we’re talking about first quarter 2021 and your gross receipts were 10 million in the first quarter of 2019. What is the threshold for gross receipts in 2021 to qualify? That would be a million dollars. Again, not reduced by cost of goods sold.

Cliff Capdevielle:
Significant decline in gross receipts, as Steve described, totally different tests for 2020 and for 2021. So, the good news as Steve described. They keep changing it. They keep making tax payer friendly changes fortunately. So, for 2021 you only need to show a decline of 20 percent versus 2019 in that particular. In order to meet the significant decline threshold. So, again, ten million in 2019 versus 2021 with eight million. That will qualify you for the first quarter of 2021.

Steve Moskowitz:
Out of that, 2021 got a lot easier and the governments give you a lot more money. Good news.

Cliff Capdevielle:
A lot easier for those of you who are filing your first quarter 2021 payroll tax returns this week. You have to two options. One is to file an amended return after you file your original 941 or if you have time today. To the calculation or call Steve and get on his calendar and get that calculation.

Cliff Capdevielle:
All right.

Steve Moskowitz:
And Cliff, we also want to mention, remember amending is fine if you’ve already paid. But if you haven’t paid yet there’s a different form to file so the government gives you advance credits. So, you say “Instead of writing the check I’d normally write you, I’m claiming my credit. You can give me the balance back in a cheque.” So, then again, the governments giving it to you both ways. If you’ve already paid it in, it’ll give it back. If it’s due but you haven’t paid it in, you have the opportunity to take your credit right now and retain the cash and not give the money to the IRS. This is fantastic.

Cliff Capdevielle:
Absolutely. So, that’s going to be something, that you do mid quarter, typically. So, if you have paid in, for example, for the first two months of 2021 and you know now with this credit that you won’t owe for that last month. You can skip that lasts months payment if you file the advanced payment credit. It’s Form 7200 and get that money back and then you won’t be obligated to make that last deposit.

Cliff Capdevielle:
Another example, imagine gross receipts for 100, 190 and 230 for first, second, third quarter versus the 2019 quarters with 210 thousand, 230, 250. So, this is again in 2020, it was a 50 percent test. 50 percent constituted as significant decline. That was the minimum threshold. So, in this example what qualifies? Well, only that first quarter with the decline. 52 percent decline of gross receipts were approximately 48 percent of the 2019 quarter. Therefore, for 2020 and again this different for 2021, but for 2020 only that first quarter would qualify.

Cliff Capdevielle:
So, again, in 2021 we’re talking about a 20 percent decline as qualified. So, what kind of wages are qualifying for the purpose of the Employee Retention Credit? So, essentially what you would imagine which is what this salary is. We don’t include payroll taxes but we do include eligible employers qualified health plan expenses. So, you do have to make that adjustment and so, this is not simply a matter of looking at your 941. There will be some calculations involved to get to that qualified wage number.

Cliff Capdevielle:
What is that allocable qualified health plan expense for the purpose of the Employee Retention Credit? Those are only those which are excluded from the gross income. So, anything. Any taxable benefits. So, anything that’s included in the W2 wages for which your employees pay tax is going to be excluded from this. The wages. So, we’re only talking about allocable, qualified healthcare expenses that are not included in the W2 wages.

Steve Moskowitz:
And that sounds complicated and technical, but the bottom line is it’s typical wages and healthcare that a lot of employers provide. This is what’s going to qualify for the credit. What Cliff is talking about is the general rule that most employers do anyway and would qualify.

Cliff Capdevielle:
So, what happens if you own more than one business? So, this is a little bit of additional calculation. But the bottom line is that you lump all of your businesses together. Whether they are parent and subsidiary corporations or brother-sister or a combined group of corporation. Those are all going to be aggregated for the purpose of all of these calculations. For the purpose of calculating gross receipts. For the purpose of calculating wages, healthcare expenses, etc. All of these calculations are subject to these aggregation rules. So, you want to be careful if you own more than one corporation that you’re including all of the corporations in the Employee Retention Credit calculation.

Cliff Capdevielle:
We talked about governmental orders earlier. What is going to constitute a governmental order that is going to make you eligible for the Employee Retention Credit? Well, it’s as you might expect, these are orders from the mayor stating that businesses must close or that residents must shelter in place. Or other local officials who are imposing curfew. Again in most cases we are talking about orders from mayors imposing curfews preventing you from opening your business or closing your business. It also includes any orders from local health departments mandating any workplace closure for cleaning or disinfecting and those sort of services.

Elizabeth Prehn:
Cliff. Just to that point. What about an essential business which was impacted by supplier slow downs and government related slow downs?

Cliff Capdevielle:
So, I mean in that case Liz, you don’t have to qualify for governmental shut down because if your customers are not paying you because they’re out of business of because they’ve close temporarily, you’re almost certainly going to qualify under the significant decline criteria. But closure of your customers does not constitute a governmental closure. And what constitutes a suspension of business operations? And again, if the government is allowing you to stay open, even though other businesses have closed, you’re not going to qualify. If any an employer operates an essential business but has a partial suspension then you’re going to look at that as [inaudible 00:25:17] facts and circumstances analysis. But it basically, as I said before, as long as some governmental agency is ordering you to suspend, you’re almost certainly going to qualify under the governmental order prong of that test.

Cliff Capdevielle:
As Steve introduced at the beginning that these rules are different for 2021 and 2020 the maximum credit was only 50 percent of qualifying wages up to $10,000. In 2021, the credit has been increased to 70 percent of the qualifying wages up to $10,000. That means a maximum of $7000 per quarter. And this has changed actually since I drafted this slide and now it is through the end of year. So, the $7000 credit per employee is going to be continued throughout 21. So, that’s going to mean a total maximum credit of $28,000 for the year.

Steve Moskowitz:
Per employee. [crosstalk 00:27:00] If you have 10 employees that’s 280 grand.

Cliff Capdevielle:
$7000 per each quarter is 28 thousand times the number of employees. And that’s going to be your maximum credit. Now we’ll see there are going to be some limitations and you’re going to want to co-ordinate this with your PPP funds and other credits but that’s a lot being number. For a lot of people who had not received PPP 2 in the first quarter 2021 that means all of their wages essentially are going to qualify for the Employee Retention Credit.

Steve Moskowitz:
By the way, since Cliff mentioned PPP. PPP 2 was set to expire today. But the Congress, a few days ago, extended it another two months. So, if you haven’t received any PPP you can go out and get that too. The government is giving away the store now. Nevermind there will be all kind of taxes coming up to pay for this that we’ll talk about in upcoming webinars, but the bottom line is right now to be on the receiving end of this you have to go and apply for this. And it’s free money. There’s no tax on it and if you spend it on the right things you don’t have to pay it back. And you get a tax deduction for it. So, you get multiple benefits.

Cliff Capdevielle:
Yeah. It really is. Sometimes when Steve and I are introducing some of these credits to our clients they really have a hard time believing that it’s real. And why hasn’t my accountant or attorney told me about this before? It is almost too good to believe. But this really is true. This is for most small businesses, it’s in many cases enough to meet all of your payroll costs. So, a very valuable benefit.

Cliff Capdevielle:
The credit is fully refundable as well. So, that means for 2020 or 2021 if you had paid in fully based on your prior experience and you were paying payroll tax as you had in the past. You can now use this credit to claim a refund on an amended payroll tax return. So, the way that would work is for 2020, the fourth quarter, if you’re eligible and you had more than a 50 percent decline quarter to quarter, versus 2019, you can file an amended 941 and recover some or all of the payroll tax that you paid for that fourth quarter.

Steve Moskowitz:
And again, if you’re thinking about doing it on your own, the government has recently revised the form three times. So, you might not be familiar with the current form. The bottom line is the governments giving the money away and this can make the difference in an awful lot of businesses between going out of business and looking at a mountain of debt you have no idea how you’re going to pay. And not only staying in business. The chance to rebuild and prosper is a big deal.

Cliff Capdevielle:
Certainly a lot of money for a small business, absolutely. So, again, 2020 we’re talking about a 50 percent credit on the first $10,000 in wages and for most people who took PPP money, they really weren’t concerned with it because PPP is forgivable for the most part. So, that’s free money as opposed to this credit which in 2020, until these law changes, you still had to come out of pocket for that payroll and then claim the credit on your 941 or amended 941.

Cliff Capdevielle:
This year again for the fourth quarter 2020 it’s not a double dip but what it means is for any payroll that you paid with non PPP money, you can go back and file an amended 941 for that fourth quarter and pick up to $5000 per employee on that amended 941.

Steve Moskowitz:
And that’s why it’s important to do that allocations because PPP didn’t cover everything. For example, employees making more than a hundred thousand a year weren’t covered. So, if you had someone who was make 150, you’d say “Well, I paid 100 with PPP but the other 50 I didn’t so that’s well more than you need to maximize your credit.” And also remember you only have to spend 60 percent on payroll. So, if you spent the other on 40 percent say, on rent, you have lots of money left over here to maximize your ERC. Your Employee Retention Credit. That’s why you don’t just say “Well okay, I got this just for now.” You want to go ahead a look at the calculations. The calculations are so important because that’s what gives you the chance to maximize the money the governments going to hand you for free.

Cliff Capdevielle:
We’re going to talk a little bit about with how this interacts with the other credits. And this is where you probably want to hire an accountant rather than to do this yourself. Is any wages for which the employer claimed the Employee Retention Credit can’t be used against the Paid Family Medical Leave Credit. So, you got to be careful there. You’re going to have to go through each one of your credits and make sure you’re not double dipping. So, it’s a very generous credit but there’s no double dipping. We’ll talk about some other credit calculations.

Steve Moskowitz:
And the advantage of going through these credits is that you might find, hey there might other credits I can utilize that I never even heard of. That’s one of the things you have to watch out for. And we get these all the time. Cliff and I talk to clients, “Well how come my accountant or lawyer didn’t tell me about this?” There’s so much in tax that’s been around for basically forever. You know? Cliff and I both been doing this for over 30 years and a lot of things in tax were that way we both started out over 30 years ago. But this stuff is all brand new and they keep changing and changing and changing. Even with the PPP with the forgiveness. They just kept changing it and changing it and changing it. But they all made it more tax payer friendly. That’s why you need to have the most up to date to get the maximum benefit.

Cliff Capdevielle:
Yeah. And you’re going to want to make sure you’re coordinating all of these credits and other government programs because you don’t want to leave any money on the table and it’s very easy if you’re not paying attention to do that. I’ve talked to several clients now who are using some of the larger payroll tax services and guess what they’ve heard about this, Steve?

Steve Moskowitz:
Zero.

Cliff Capdevielle:
Nothing. So, the big payroll companies are not going to help you out. Doesn’t matter if you have them, use them for 10 years. They’re not going to come to you with tax planning ideas or make sure that you’re coordinating your credits in a way that you don’t leave any money on the table

Steve Moskowitz:
And in fairness to them that’s not their job. Their job is to do something else and this is our job. Telling you here’s the max you can do and coordinating these things and getting the max while you still can.

Cliff Capdevielle:
So, again, this is fully refundable credit. So what does that mean? It means that the access is treated as an overpayment. So, if for example, in the fourth quarter 2020 or the first quarter of 2021, that you’ve been paying in as you always did, then the excess will be applied to offset any remaining liability and whatever additional you paid is in is going to returned to you. And that’s money in the bank.

Cliff Capdevielle:
Talk a little bit about how to coordinate the ERC with unforgiven PPP loan proceeds. So, now some of you have applied for forgiveness. Most of you are going to get forgiveness on 100 percent. But what if you don’t? What if the SPA says “Now, we’re not going to forgive 10 percent or 50 percent of what you’ve claimed.” Well guess what? You’re not out of luck because you can go in now and claim the ERC credit for any of those loaned proceeds from the PPP that are not forgiven. So, again another opportunity you’re going to want to look at this after your PPP forgiveness application has been processed to make sure that you’re given credit for 100 percent of your PPP loan proceeds and all of that is forgiven. And if not, you’re going to want to call Steve and see if we can do the credit calculation and get some money back.

Steve Moskowitz:
And we’ve talked to you about the importance of these calculations. The accounting to go ahead and maximize your credit but there’s another reason why the accounting is so important. And again, Cliff is very familiar with accounting and you know I was a CPA before I was a tax attorney. Some of these are going to be audited. If you’re audited you want to have all of the records right there available and say “You know what? I’m entitled to every penny that I took. Here’s the record supporting that. Here you go. Goodbye.”

Cliff Capdevielle:
Exactly. So you’re not going to want to do that yourself.

Cliff Capdevielle:
Here. So, let’s talk about how it works for forgiven PPP loan money. So, if you’ve taken PPP money and it’s been forgiven then you can’t use that same payroll to support an Employee Retention Credit refund claim. But in many cases some or all of your payroll is paid out of pocket. It was not paid with PPP money.

Steve Moskowitz:
And also. There’s something else real important to remember. Because everyone says “Oh, I got PPP and paid it all in wages.” And “What are you guys talking about?” And “That doesn’t qualify me.” Hold on. The PPP handled two and a half months of payroll. And again not the total payroll, just the payroll under 100 grand. Two and a half months.

Steve Moskowitz:
This ERC for 2021 is dealing with 12 months. So, by definition, no matter how much got for PPP. It was only two and a half months worth. By definition, most of the year of the payroll you paid was not with PPP funds. So, that’s another area where the bottom line is we’re telling you about exclusions and things where this doesn’t count and that doesn’t count. But for the most part, again, I can’t stress enough, PPP covers the max of two and a half months. This is covering 12 months. So, basically, you know for sure nine and a half months could not have been covered with PPP. So, the bottom line is even if you got, no matter how much PPP, there’s an awful lot of ERC that you should be entitled to.

Cliff Capdevielle:
Take an example here. This is for you March Madness fans. So, employees receive 100 grand in PPP money. And all of that would have qualified for the Employee Retention Credit and as part of the forgiveness application. The client [inaudible 00:40:33] did not to consult Steve. So, they reported 100 thousand as qualified wages for PPP and they received decision of forgiveness on the entire 100 thousand. What does that do to their ERC eligibility? Well, they get zero. Right? Because these [inaudible 00:41:02] is deemed to make an election not to take any of the hundred thousand dollars into account for the purpose of Employee Retention Credit. They instead took the position that this $100,000 was entirely used for payroll, qualified wages and they reported that on their PPP loan forgiveness application. As a result they get zero from their Employee Retention Credit.

Cliff Capdevielle:
Pardon me?

Steve Moskowitz:
We don’t like zero.

Cliff Capdevielle:
Nobody likes zero. So, what should they have done, Steve?

Steve Moskowitz:
They should call us.

Cliff Capdevielle:
Should of have called you. And then what should they have done on their loan forgiveness application? [crosstalk 00:41:51]

Steve Moskowitz:
That’s why the allocations are so important, that you were talking about. So vitally important.

Cliff Capdevielle:
So, this client came and talked to Steve before they filed their forgiveness application and they allocated $70,000 of the PPP money to other forgivable expenses besides payroll. And what does that do? They still got the forgiveness? Right? The client still qualified forgiveness for the entire $200,000 in PPP money. But because they carved out $70,000 as non payroll costs on their PPP forgiveness application, that freed up $70,000 as qualified wages for the Employer Retention Credit. And guess what? What is $70,000 if it’s just. Imagine that that’s $10,000 per employee for seven employees. You’re talking about almost $50,000 in credit. So, if you’re ever writing a cheque for $50,000 but only if you fill out your forgiveness application correctly carving out these expenses as non payroll.

Steve Moskowitz:
The bottom line with the proper accounting, you get 100 percent forgiveness on the PPP and maximize your ERC. That’s what it’s all about.

Cliff Capdevielle:
What happens if you acquire a business? So, very similar to the result with the aggregation of businesses that you own now. You’re going to include all of the receipts for the acquired business when you’re doing the computations for each quarter. You’re going to add that acquired businesses gross receipts and the acquired businesses wages to the original businesses receipts and wages when you run these calculations.

Elizabeth Prehn:
Cliff. Just to refresh every bodies recollection. Is this all assuming that 50 percent decline in gross revenue?

Cliff Capdevielle:
Only for 2020. So, for 2020 you have to prove that 20 percent decline. So, for now for the most part we’re talking about amended fourth quarter 2020 payroll tax returns.

Steve Moskowitz:
And remember, in order to qualify it’s one or the other. If the business shuts you down that qualifies you. But for most people you only had to be down 20 percent in 2021 as opposed to the 50 percent in 2020. So, the big differences between 2020 and 21 is, 2020 is 50 percent. 2021 is only 20 percent. In 2020 the governments only given you five grand a head. 2021 they’re giving you 28 thousand a head.

Cliff Capdevielle:
Exactly. So, much more generous in 2021. And back to the clarification. We’re still awaiting a lot of clarification on the brand new American Rescue Plan. But what we know is excluded in which you can’t double dip. The R&D Tax Credit. We talked about the Paid Family Medical Leave but also Indian Employment Credit and Work Opportunity Credit and [inaudible 00:46:11] Zone Credit. Paid Sick Leave Credit. So, you’re going to have to go through your credit calculations. First of all I know because we talked to a lot of people come in and they’re not claiming any of these credits. Some of you don’t have a problem with double dipping because you’re not claiming all the credits you’re entitled to. But if you are claiming some of these credits you’re going to have to coordinate those to avoid double dipping.

Cliff Capdevielle:
Now the good news is…

Steve Moskowitz:
Most people never did a single dip. Most people have never heard of these things. Most people were never told by their attorneys or their accountants about these things. And a question that Cliff and I get all the time is “Oh so, is this R&D? Is this new?” And I say “No, this has been around for years.” “Well, how come my guy didn’t tell me about that?” That’s why you’re here. So, what I’m saying is it’s fine, no double dipping, but most people never heard of this stuff, much less taken it. So, for most people and it’s going to be an awful lot of people that qualify. And if you qualify you should get the money the government is literally giving you.

Cliff Capdevielle:
And say you just want to go through all of your payroll. So, if you’ve got payroll for, for example, let’s use the R&D Tax Credit. So, almost always if somebodies eligible for the R&D Tax Credit it’s only going to apply to a person of wages. So, what you would want to do is go through and carve out those wages. You subtract your R&D wages from your total wages. You subtract the wages that you’ve paid with PPP money, for example. And that difference is eligible wages for the Employee Retention Credit.

Steve Moskowitz:
Cliff. I’m hearing someone in the audience saying “All these letters. What is the R&D credit? What are you guys talking about?” And the answer is if you’re in business and you have essentially an innovative process or product, the government will give you money for that too. And on that one you can go three years back. So, if you’re saying “Hey, I think I might quality for some of that but I got the PPP and I got the ERC, so I guess no R&D?” No, no, no. With R&D you can go three years back. So, the bottom line is if you’ve never heard of this stuff, we’ll tell you. Would you be better off taking R&D or these things? And if you’re better of with these things, that doesn’t mean we can’t go back to a year before the ERC took place. Like 2019. Like 2018. And get your money back for that too.

Steve Moskowitz:
So, the way I look at it is not just the double dipping, it’s hey, we are making you aware of what this is. We’ve talked about RND in pervious webinars so that’s something that you might be interested in too. And if you are just let us know and we’ll send you information on that as well. So, the bottom line is rather than double dip you can say “Hey, I can go back to these other years. Like 2019. 2018 and get it. So, there’s all kinds of government giveaways but the problem is, its complex. And the other thing the way I explain is to clients sometimes is these laws are so cumbersome, so burdensome it’s like if I said to you “I’m going to put a cheque on your desk from the IRS for a million dollars and it’s going to expire in six months. Would you take that cheque to the bank?” I bet you most of us would say “Why, yes I would”.

Steve Moskowitz:
But suppose an example too, I put that cheque on your desk and then I backed up a dump truck and I dumped one million canceled cheques on that same desk. And then say “Well there you go.” And you look and say “Oh my god, what a mess.” You never get the million dollar cheque. And some smarty pants says “A cheque for a million dollars was right on your desk, why didn’t you take it to the bank to cash it in the six months it was good?” Because you didn’t see it because of all the other stuff. Basically that’s how a lot of our laws are. There’s so much in there you just don’t see it because the million pieces of paper are on the desk and you don’t see the valuable on.

Steve Moskowitz:
So, that’s what we’re trying to do. Say “Hey, these things exist and we know where that cheque is scattered among those other million pieces of paper that don’t apply to you.”

Cliff Capdevielle:
The other nice thing about the Employee Retention Credit, Steve, is as oppose to some of these other credits that require you to be in certain locations or hire certain types of employees or in the case of the R&D Tax Credit requires you to carve out certain salary for certain employees. Fairly complex calculations. The R&D Credit, I mean as opposed to the Employee Retention Credit is a totally different deal. The Employee Retention Credit is eligible. You’re going to be eligible for…[crosstalk 00:51:26]

Steve Moskowitz:
What we’re trying to say is that you’ve already done it. So, because you’ve already done it the government says “Hey, since you’ve already done this certain behavior, the government will give you money.” That’s what we’re talking about. You’ve already done it.

Cliff Capdevielle:
Yeah. So, very little work relative to some of these other credits. You certainly want to go for all of credits but the Employee Retention Credit is really. Should be on the top of every bodies list this year.

Cliff Capdevielle:
So, again, we’re going to want to coordinate with grants as in addition to the credits. So, most of you have heard about the Restaurant Revitalization Program and the grants there that are rolling out now. And the other SPA programs in addition to PPP. There’s several other grants given by the SPA. So, we will want to coordinate all of that together and figure out which combination of programs and credits creates the most dollars in your pocket. And it’s not rocket science but it certainly does take some coordination and some calculation to maximize the benefit.

Cliff Capdevielle:
We talked about aggregation. We talked about businesses acquired. Now, we have a similar issue when we talk about start up businesses. So, what happens, for example, if you don’t have any 2019 revenue or no employees in 2019? Are you still eligible? So, under the new program just rolled out a couple of weeks ago. An eligible employer now includes what’s called a Recovery Startup Businesses. That’s business started after February 15th 2020. A million dollars or less in gross receipts and those businesses are now eligible for the Employee Retention Credit. And with that Steve, we just have about five minutes left.

Steve Moskowitz:
We only have five minutes when one comment I might say. The ERC applies to any type of business. But next week we’re talking about a special all that applies to restaurants. And restaurants is very broadly defined. Restaurants, bars, food stamps, food cards. And they specifically left it very open. Businesses itself. Food and drink. To the public. In this one the government is giving you your pandemic losses. We’re going to compare 2019 to 2020. And the government is going to give you the difference between your gross revenue and the pre-pandemic year and the pandemic year. Up to ten million dollars. But watch out for that one because the government has marked some of money. When that money is gone it’s gone. This is first come first serve. So that’s something that you can look forward to talking to us about next week. And on that, let’s go ahead and open the floor for any type of questions.

Cliff Capdevielle:
Do we have one question? Or Liz do you want to go ahead and read questions?

Elizabeth Prehn:
Sure. I think we’ve been kind of hitting them as we go. There was one about our business did not have a 50 percent rejection in revenue. Is it possible use the PPP expense?

Cliff Capdevielle:
Absolutely. So, you’re still eligible. There’s some confusion about this. So, if your business qualifies for PPP but did not have a 50 percent reduction in gross receipts, are you still eligible for forgiveness? Absolutely. Yes. So, even if you’re not eligible for the Employee Retention Credit, you still are eligible for PPP loan forgiveness. It’s a different set of criteria.

Elizabeth Prehn:
All right. And then just to reconfirm with the 50 percent with the ERC. It’s comparing the first quarter of 2021 versus 2019, correct?

Cliff Capdevielle:
Yeah. So, that’s a little tricky. It’s kind of counter intuitive. For 2021 you’re not comparing gross receipts to 2020. Which of course was a Covid year. You are comparing your gross receipts to the same quarter of 2019. So, it’s a little bit counter intuitive but you’re not comparing year to year. You’re looking back to 2019 when you’re doing that significant decline calculation.

Steve Moskowitz:
Figures before and after Covid.

Cliff Capdevielle:
Exactly.

Elizabeth Prehn:
And how about using ERC for sole proprietorship’s with no employees?

Cliff Capdevielle:
Well, you’re not going to be an ERC candidate but the other credits and the other grants, you are certainly eligible for. So, I know a lot of people originally put off from applying for PPP because it was not open to sole proprietors. But now it is. So, as Steve mentioned at the beginning. Because the application windows been extended by two moths, if you’re a sole proprietor absolutely, you should be applying for all the PPP. [crosstalk 00:58:02]

Steve Moskowitz:
People are confused with the terminology. Sole proprietor or independent contractor. You can still go ahead and do this.

Elizabeth Prehn:
And how do they? How should people? Should they contact us for the PPP application? Are we still taking those?

Steve Moskowitz:
So, if you’re going to contact us for ERC then what we’re doing is, we’re doing the PPP 1 forgiveness as part of our ERC work.

Elizabeth Prehn:
Or any other credit analysis work?

Steve Moskowitz:
Sure.

Elizabeth Prehn:
Okay. What will happen for an essential business to just miss the 80 percent that we’ve been impacted by many local vender shut downs?

Steve Moskowitz:
Well it’s one or the other. So, if you’re shut down you’re going to qualify.

Elizabeth Prehn:
But they were deemed an essential business but they’re affected because of the suppliers and supply chain problems.

Steve Moskowitz:
Then I would very carefully want to look at the records and see how close are they do the dividing line. Is there anything that they’re including in gross revenue that shouldn’t have been? Something as simple as you’ve taken a cash advance on your credit card to get you through a payday and you forgot about it. That’s not revenue. And I see it all the time with small businesses. Where the owner is transferring money back and forth between personal accounts and business accounts. Then people forget as the year goes on. So, that’s the first thing that I’d want to do is make sure do they qualify there or not?

Elizabeth Prehn:
I mean I think this week we’ve been seeing the first round of the State of California and the DRJ prosecutions for Covid related fraud.

Steve Moskowitz:
Yes, unfortunately, there’s some people that take advantage of things and yes there have been prosecutions for that. So, the bottom line is obviously [crosstalk 01:00:10]

Elizabeth Prehn:
There’s going to be some audits and there’s going to be some. You don’t want to be willful.

Steve Moskowitz:
Absolutely. So, again, you want to get everything to which you’re legally entitled but you don’t want to do something that god forbid gets you prosecuted.

Elizabeth Prehn:
And then, how do you talk, what’s the fee structure for some of this? For the analysis or process dates? I’ve heard that there’s quite a few different…

Steve Moskowitz:
Well, what I would say is, that would depend on the magnitude of the business. Whether we are talking this fee or that. So, what I’d say is we have a free initial consultation anyway. Talk to us and we would say the fee for you would be axed. Whereas your nextdoor neighbor the fee could won because your businesses could be very different.

Elizabeth Prehn:
Okay. Great. So, this presentation was recorded and it will be sent out to the attendees and put on our website for future reference and feel free to contact us via the website moskowitzllp.com or feel free just to pick up the phone. 415 394 7200 and we can answer any additional questions or get you connected.

Steve Moskowitz:
I’d like to thank the audience for listening to us and watching us. I know I had a good time in presenting my part. I’d like to think my colleagues did as well. This is fun for us and a lot of potential money for you. And any of you that are listening to this that own restaurants. Please tune in next week because the government is just super giving this money away.

Cliff Capdevielle:
Great. Thank you all. Thanks Steve. And we’ll see you next week for the restaurant program.

Elizabeth Prehn:
Very good. Thank you. Bye.

Steve Moskowitz:
Thanks. Goodbye.