Paycheck Protection Program Forgivable Loan vs Employee Retention Credit

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” re going to be discussing the paycheck protection program. The ppp forgivable loan in comparison comparison to the employee retention credits if you didn t know you can only claim or the other you can t claim both. We just did a case study on an actual client today. We re turned out that it was a bad idea to go for the ppp forgivable loan that it s favorable to go for the employee retention credits let s go over this this video is not what is the erc matt.

It s not what is that player attention credit. It s not what is the forgivable loan. The paycheck protection program. If you want to know more details about each program go see my other videos.

The employee retention credits here it is you get a credits you get a tax credit for paying your employees. This is kind of like an incentive for not laying off people or firing people the credit the maximum tax credit is 5000 you get 50 cents on the dollar as a tax credit up to 10000 on employee compensation per employee in plain english that means if you pay. Your employee. 10000 you will get a.

5000 tax credit and that s the maximum credits per employee 5000. Okay this is the employee retention credits we re gonna compare this compare taking this to the ppp forgivable loan because again you re either choosing one another and we re gonna obviously go and opt for the one that s more favorable the paycheck protection program this is based off your 2019 payroll or if you re new in 2020 as a business or as a sole proprietor then it s based off your january february. But regardless in this situation. We re gonna be comparing payroll costs in 2019 let.

Me just go over let me save you some time and shortcut when it s a straightforward case. So that i don t waste your time. If you are me..

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If you if you have more than 500 employees you just go with employee retention credits because why because you are disqualified from participating in the ppp forgivable loan program. The paycheck protection program alone is only for small businesses with 500 or fewer employees. So if you have more than 500 ploys you go at the employee retention credits boom. You re done if you are a sole proprietor.

An independent contractor self employed if you are a partner in a partnership basically if you re one of those and you do not have employees. Then you re gonna go with the ppp. The paycheck protection program. Why because if you don t have employees.

Then you re not qualified for the employee retention credits. Therefore you re sticking with the ppp. So i hope that s clear so in those cases. It s straightforward.

We re gonna be analyzing the situation that you qualify for either vrc and player attention. Credits or the ppp. The paycheck protection program. Now this is a case study that we did and we found outs through basic algebra that 24000.

A payroll cost is the magic number. I m gonna explain this the maximum credits again for the employee retention credit is 5000. Right so just remember that i m too busy to edit that and put a big..

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5000 over here so just remember employee retention credit the maximum is 5000 per employee okay the paycheck protection program i m gonna assume that you have a basic understanding of the equation to calculate that and i m gonna walk you through just a basic. Example the reason why 24000. Is the magic figure is because that s when its equivalents to the employee retention credits of 5000. Forgivable loan.

I m gonna show you let s say the payroll cost which is salary plus employee benefits such as employer retirement contributions so regardless let s just say we re salary for 2019 was 24000 and we re gonna look at the perspective of the ppp salary was. 24000 what s the monthly what s the average monthly. 24000 divided by 12 months that s 2000. A month.

So i m sure most of you already know the basic ppp equation it s two and a half times your monthly again. 24000 salary 2000. Monthly multiplied two thousand monthly times two and a half. What is that that s five thousand.

Dollars so that s the amounts where it matches the 5000. Employee. Retention credit and that s where you get the five thousand dollar. Paycheck protection program forgivable loan amount that s equivalent see five thousand i credit if i thought forgivable loan so in that situation.

It s kind of you can choose either or and it s gonna be the same. Thing let s say you re your salary in 2019 was 48000 this is a situation where the ppp is favorable if you have a. 48000 salary what s the monthly average it s 4000 4000..

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You multiply the monthly by the two and a half times which is a. 10000 forgivable loan in that situation you have a. 10000 i forgive them alone compared to a 5000. Dollar tax.

That s a clear cut go of the ppp routes that s because due to. Basic algebra it s above the. 24000 mounts therefore if it s above 24000. The other ppp route.

I m gonna show it i m gonna draw it out for you if it s under 24000. Mounts this is how it breaks down let s see your salary was 12000. If that s the case what s the monthly average twelve thousand divided by twelve months is. 1000 monthly average multiply that by a two and a half you get.

2500 you re talking a. 2500 forgivable loan from the ppp program versus a 5000. Tax credit for the employer attention. Credit so i brought much rather have the 5000.

Compared to 2500 in the forgivable loan in the ppp. Program that s a case where okay that just shows you 24000. Is the magic number if it s above that go on the ppp route..

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If it s below that go to the erc way. But this is a situation where it s so straight forward it would be so straight forward if we re talking s. Corporations. Where you re the only employee of the corporation.

So it s just you but remember that this equation it s per person per employee. So if it s one person. It s as straightforward as what we just walk through if it s multiple employees. Then you have to do the calculation or the payroll softwares have that and how the reports.

But that s that s what s going on behind the scenes just keep that in mind. Okay. I mean i hope. That s helpful.

This is a high level overview of the erc versus the ppp and just please remember that you cannot claim both if you get the ppp you are disqualified from receiving the benefits of the grc. Thank you so much please leave any questions constant below. I will try my best to get back to them. And thank you so much ” .

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