Thread by @RavenousTiger

Busy today with webinars, but I'm starting this thread now and will add to it as I have time, probably finish about midnight at the rate I'm going. Let's think about the new ERTC. #taxtwitter

Changes in the relief bill allow ERTC to stick around for Q1 and Q2 of 2021. That means we can plan for it looking forward. I think it mixed with PPP Second Draw in a very strange way. More on this later.

Changes to ERTC to allow up to $10k wages per employee per quarter instead of per year. Changes make the credit 70% so $7k per emp/quarter max. Changes allow ERTC to be claimed by taxpayers who did take a PPP loan, no double counting wages for PPP forgiveness and ERTC.

Changes the rules retroactively so you can go back to Q2, Q3, Q4 of 2020 and amend to claim these ERTC. Changes permit a company with only a 20% decline in gross receipts or shutdown by govt order. Also raised the size restrictions so business up to 500 employees can claim.

So ERTC is a bigger amount, it applies to bigger businesses, applies to the ones who claimed PPP, applies retroactively, applies the next two Q, keep in mind it's a refundable credit done through payroll tax returns. Nifty.

Figuring the Q2 payroll probably paid with PPP money, it's probably Q3 and Q4 of 2020 that require closer look. Need to see if the business was down 20% or if the business was closed because of shutdown orders. It'll be different in each state, but I think of a restaurant.

So a restaurant used their PPP in Q2 of 2020. They are sitting at like half normal revenue and half normal staff in Q3 and Q4. That's ERTC time in a big way. Many employees in a restaurant would make less than $10k per quarter, so getting 70% of most wages paid w/ ERTC.

So Q3 and Q4 the restaurant has 70% of wages paid w/ ERTC since relatively low wage employees they just gotta go back and amend to claim the ERTC. Huge relief right there. Going back and determining qualification and amending 941s is a huge project, but well worth it.

Looking forward the restaurant probably still stuck at 50% revenue and staffing for Q1 of 2021, Q2 of 2021 harder to predict, but likely a higher staffing and higher revenue. So Q1 will qualify for ERTC, but wait they'll also potentially get PPP Second Draw.

You can't count wages for PPP Second Draw forgiveness and the ERTC at the same time. Makes sense so then what's the plan? ERTC covers 70% of the payroll cost (up to $10k wages per Q) and PPP covers 100% of the wages (up to basically $25k per Q). PPP is better.

Well not so fast. PPP is better, but wouldn't ERTC + PPP be even better still? A business could potentially do ERTC in January/February and then get PPP Second Draw in March. PPP goes March + 24 weeks until August. Now that's a tasty restaurant idea right there.

Of course the problem is we don't know if you can still get a PPP in March. Money for that could very well run out long before so in trying to stretch the relief benefits of ERTC + PPP you miss out on PPP entirely. That's not so good.

Hard to have a perfect strategy if you don't know how long PPP will last this time around, but it seems to me ERTC first in 2021, then doing PPP will get you more benefit and encourage you to have more staffing on hand than you otherwise would, which is kind of the point.

Gotta run to webinar #1 for the day. More discussion to come. Welcome other ideas on the topic in the meantime.

Another interesting provision is a new election you can make to use the prior quarter instead of the prior year. We'll need guidance on how to make that election, but an odd new wrinkle. Not sure what kind of biz fits that profile.

I suppose a biz could have been starting up in 2019 so 2020 revenue is higher, but like Q4 is way off from Q3 so this alternative quarter election would allow them to qualify even if Q4 2020 is higher than their 2019 revenue. Seems messy.

I think I’m going to make a chart of ERTC instead of a spreadsheet. Yes a chart will do nicely. Clients don’t like spreadsheets but everyone likes a good chart.

This is more difficult than I thought, and I knew it was going to be difficult.

I think I've finished my first draft of the ERTC flow charts. Decided to just go separate ones for 2020 and 2021. I'll need to revisit this with a fresh brain for sure and my graphic design skills leave something to be desired, but here it is for #taxtwitter to comment on

I've made a few tweaks / additions to the ERTC flow charts. The substance is unchanged, just a little more info on there, a little more precise although I'll never fully capture the complexity in a flow chart. We'll call this version 2, suggestions welcome. #TaxTwitter