Art Wiederman, CPA And hello, everyone, and welcome to another edition of the Art of Dental Finance and Management with Art Wiederman, CPA. I'm your host. My name is Art Wiederman and I'm a director, a dental division director. Try saying that fast three times, everyone, dental division director or as they call me, DDD, which is different than PPP, which we're going to be talking about. And I just thought of that. DDD.
I'm a dental division director for the CPA firm of Eide Bailly. Very proud to be part of Eide Bailly. We've been part of Eide Bailly for about nine months now, almost 10 months actually. And it's going really, really well. And I've got great resources and great team members. And tonight we are again date stamping these podcast folks. It just never ends.
I always use the analogy of imagine if you're state dental board came to you with an email every single week and said, OK, doctor, this is how you this is how you do a crown prep. And we're going to change it this week. With the new law that just came down that we're going to change it next week and want to change it the week after and so on and so on and so on. Well, that's been our CPAs lives here in the last 12 months. I mean, not only are we supposed to know the tax laws and how to do accounting and help you with your personal financial and business financial issues, but we now have an entire new business.
Kind of like when cost segregation came into the world. It was a whole new cottage industry well we have a whole new cottage industry with PPP and the Employee Retention Tax Credit, which we're going to talk a lot about tonight.
So tonight's podcast, we are recording on Sunday, March 14th, which is Pi Day. And somebody told me earlier today that it was Pi day. And I said, well, I said, I like apple, I like cherry, I like boysenberry. And they said, no, no, no, it's Pi because 3.14 three point one four is Pi. I'm a CPA. I should know that. And so today is Pi day. It has nothing to do with apple pie, which was very disappointing to me because I love apple pie. So today is Pi Day. We're going to be recording tonight here in Southern California. And this will be this will go up on the Internet on Wednesday, the 17th this coming Wednesday, because we're trying to keep it current.
I had wanted to record this last week. We just didn't have enough time to get through all of the data and all the detail and the one hundred and three pages of the notice that we've been waiting for a long, long time. Well, we got that. And now I'm ready to tell you how this all works and what is all this I'm talking about. This is the interaction between the Paycheck Protection Program and the Employee Retention Tax Credit.
So we'll get to that. Might be a little longer podcast than usual, folks, because I did a webinar on this to about three hundred dentists on Wednesday night. And if you want to, by the way, listen to that, you can go to www.EideBailly.com and go to insights and you will find your I'm sorry, not Insight's go to our YouTube page and you'll find it all over our YouTube page. All of the webinars that we're doing and the one that we recorded last Wednesday night.
But before we get to all that, just a couple of things I want to share with you. I want to tell you again about our wonderful, wonderful partners, Decisions in Dentistry magazine. They have just they've grown. I was talking to Lorraine Kent, their publisher, and they've just grown by leaps and bounds and just providing some fantastic, fantastic information. They've been on top of all the issues on covid that dentists have had to deal with. Clinical, it's a clinical magazine. My podcast is the only business representation pretty much they have in the magazine. And I'm very, very proud that they chose me to be partners. I love the folks at Decisions in Dentistry. If you're not a subscriber, you should be. www.DecisionsinDentistry.com.
If you are not working with a dental CPA, we at Eide Bailly are a member. I was a founding member of the Academy of Dental CPAs. Twenty four CPA firms across the United States that represent about nine ten thousand. I keep saying that. We're up to ten thousand dentists and growing every week and I've mentioned this before, my good friend B.J. Kaucher from South Carolina, who is one of our members and a dear, dear friend B.J., coined the term that we are the financial first responders. And that is what we are folks.
We've been there all through this pandemic, which tomorrow will be one year, one year folks that since dental offices and pretty much our whole country shut down because of the pandemic. And, you know, it's been a tough year for everyone, but we are on hopefully on the down leg of this. The vaccines are out and we're all, you know, knock wood, hopefully going to be able to resume our lives, you know, sooner rather than later. And we're all praying and hoping for that.
So speaking of the Academy of Dental CPAs, if you're not working with a dental CPA, you absolutely should be. My firm, Eide Bailly. We are the Southern California member. My email address is awiederman@EideBailly.com. The ADCPA website is www.ADCPA.org. Click on the members link and you'll find a member in your area. And everybody is working on what we're going to be talking about tonight, which is the interaction of the Paycheck Protection Program and the Employee Retention Tax Credit and how you can basically get tens of thousands of dollars. And I'm going to tell you how to do it here tonight.
First, I do have some sad news, unfortunately, to share with you. Many of you know this. It's not been. We've lost members of our Academy of Dental CPAs. This is my family. I love every single person that is a part of this group. All of us have formed this in 2001. This is our 20th anniversary of being a group. And it's just been amazing. We've worked together with the ADA, with Michael Graham and Megan Mortimer. I've had the honor of interviewing both the president and the executive director of the ADA on this podcast.
Well, a couple of weeks ago, we lost another one of our dear members, Larry Rosen, who formed the CPA firm that is our member firm in Boston, passed away a couple of weeks ago. Larry was one of the first people that I met in the ADCPA. And Larry was the kind of person that every single time I saw him at a meeting, he would come up, he would give me a bear hug. And the first thing he would say is, how is your wife, how are your boys? First thing every single time Larry cared more about people than you will know. They had a virtual Shiva ceremony and the Jewish religion, you sit Shiva and of course, we cannot sit Shiva during a pandemic. So it was a virtual ceremony with the rabbi from Larry's Temple in Boston. Beautiful ceremony. Almost 600 people, 600 people. That's how much this man was loved.
His son Mark now runs the firm. I've known Mark for years. I remember when Larry was, Larry and I first met, he was first telling me about how my son is starting to work for our CPA firm. And I'm real proud of him. And I'm hoping that he's going to be able to, you know, continue my legacy down the road. And I spoke with Mark earlier today and spoke to Mark and his mom was in the car. I will tell you that the Rosens are just the best people, I mean, the best people on the planet.
And I'll tell you how amazing Larry was in the firm that he ran, so before I merged with Eide Bailly, our firm HMWC, every year we would have a partner retreat. And in this partner retreat, we had a facilitator, someone who was an accounting firm consultant. Like in your dental practice, you'd hire a consultant. Well in the accounting world, we need consultants too. We need help. We want to run our businesses efficiently and effectively. So this consultant was talking about five firms that were up and coming firms in the United States that were comparable to the firm that we had. And we had a really, really great firm, really good firm. And one of the firms on the PowerPoint said Rosen. So I raised my hand. I said Rosen. Is that Rosen like Larry Rosen, he says, you know, Larry Rosen? And I said, yeah.
I said Larry's a friend of mine. He's part of our dental CPA group. He says, oh my God. And then we had a drink afterwards with the facilitator. And he told me stories about Larry. And we were just laughing. And then I get the email that Larry had passed away a couple of weeks ago. And I was in tears and I wrote Mark, you know, his son, a long email about my dad and you know, how my dad had been my inspiration. And Mark got up and talked about his dad on the, you know, at the on the virtual Shiva ceremony and gave a wonderful, wonderful talk. And so I just want to make sure, you know, if you knew Larry and you didn't know this news, please reach out to the Rosen firm and let them know your condolences and everything.
And if you didn't know him, he was a wonderful human being. He's the fourth person that we've lost in the ADCPA in the last year or so. And it just breaks my heart. But I do want to remember Larry, he made a huge contribution. His clients loved him. He was the business adviser. I mean, listening to things they said about him was pretty amazing. So, Larry, I'm going to miss you. I'm going to miss your sense of humor, your smile, your caring as we are all. So I just wanted to make mention of of the passing of Larry Rosen in Boston. If you ever if you get a chance to, you know, shoot an email out to Mark and just give them a, you know, hi, how are you doing? It's hard because they were pretty tight.
So with that said, let's move on to our topic tonight. And our topic is how can we use the Paycheck Protection Program in conjunction with the Employee Retention Tax Credit? So let's start with a little bit of history here, folks. OK, first of all, on March 27th, back in 2020, we had the CARES Act, became law, created the Paycheck Protection Program. And this thing that nobody had really paid any attention to called the Employee Retention Tax Credit, the ERTC. So for Paycheck Protection Program, I'm going to use PPP and for Employee Retention Tax Credit, I'm going to use the ERTC or we'll be here all night.
So they allocated three hundred and forty nine billion dollars to the PPP program rolled out in early April of 2020 and that money was gone in two weeks. And they wanted you to spend that money over eight weeks time on payroll, not let people go on unemployment. We all know the story. In late April of 2020, Congress gave us round two of the PPP, another three hundred and ten billion dollars and about one hundred twenty billion of that just didn't get borrowed because a lot of people just didn't like the program rules. It was very complicated. I mean, I was doing I must have done 30 40 webinars on this thing every week. There was new rules.
And the Employee Retention Tax Credit, which we're going to get deep into in a little bit it was available. It was a tax credit for employees, employers who met certain rules. But had you taken a PPP loan, you were not eligible to claim the Employee Retention Tax Credit. So the PPP was a much better financial deal than the ERTC. So virtually none of my clients claimed it. And, you know, originally they wanted you to use it over eight weeks. Then in March and then in June, they expanded that to twenty four weeks because that made sense, folks. You know, the Congress had this eight weeks because they thought that this pandemic was going to be over in eight weeks. That's what they thought.
Well, it wasn't. It wasn't over in eight weeks, we know it wasn't over in eight weeks. So basically they expanded it to twenty four weeks, you had twenty four weeks to spend the money and you had to spend at least 60 percent of it on payroll. So I'm not going to get deep into the rules. We've talked about these rules on this podcast before. So where are we now? OK, where are we now?
Number one, it's time to start thinking about filing for forgiveness of your PPP loan. Now, if you are not going to be eligible for the Employee Retention Tax Credit, we're going to talk about that, you know, here shortly in great detail. If you're not eligible for that tax credit, what you need to do is there's no reason for you to wait to file for forgiveness. So I'm going to walk you through three simple steps that you need to put on your calendar. Your CPA is not going to call you and say, hey, you need to file for forgiveness. They're not going, not very many CPAs are going to put that on their calendar. You have to put this on your calendar.
So what I want you to do is step one and do this Monday morning, go to your practice bank statement and take a look at what date you received your PPP one loan. That would have been somewhere. My guess would be between April 15th and May 30th of 2020. OK, take that date now it's the date that it hit your bank account. So look at your bank statement. That's very important. The date it was deposited is the beginning of what's called your covered period.
Then what you do is you add 24 weeks to that date and that's the end of your covered period. And then you get to add up to 10 months after that. And by that date, you need to file for forgiveness. So let's go through an example. Dr. Wiederman got his PPP loan deposited into his business bank account on May 7th of 2020. His twenty four week period ended on October 22nd of 2020. And then he has 10 months to file for SBA forgiveness, which means you have Dr. Wiederman has until August 22nd of 2021 to get the forgiveness forms. And would I wait if I were Dr. Wiederman until August 22nd to send it through the computer because you're going to basically file this through your bank's portal for forgiveness. No, I wouldn't. I would do this sooner.
But for most of you, if you got your loan, say, on April 15th, the program I think started on the 4th or 5th when they started making the loan. So that would bring you back to somewhere around the 1st of August. So most of you have until probably end of July, till maybe sometime in September that you have to file. So we've got time. Now, I'm going to say this several times in this podcast if you decide to turn it off. If you are going to be eligible for the Employee Retention Tax Credit, we would strongly urge you to consider not filing for forgiveness until you have somebody do all of these calculations, which we're going to talk about to see if we can get this. And I'm going to explain why as we go along here.
So we have the PPP, we have the PPP two. And before I move on to the stimulus bill, there's stuff going on with the PPP two. OK, we're going to talk about that. But you have until March thirty first to apply for the PPP two loan because that came out as part of the stimulus package. Well, what happened was, is on December twenty seventh, 2020, the president signed the nine hundred billion dollar stimulus package, which created round two. It's like a fight. You know, this has been like a heavyweight fight round one, now round two. Two hundred and eighty four and a half billion dollars for round two of the Paycheck Protection Program as part of the nine hundred billion dollar stimulus which permitted six hundred dollar stimulus payments. And now we're going to have fourteen hundred dollar stimulus payments. I mean, they just keep printing money, but that's what they're doing.
What it did was it created round two of the PPP big, big deal here, it allowed dentists and other business small business owners to take a federal income tax deduction for PPP covered expenses that they paid in 2020 with round money. And they will also allow you to deduct the expenses you pay in 2021 with round two money. So think about this. This way, folks. You got the money, you're going to get it forgiven. So it's going to be you got one hundred thousand dollar PPP loan. It's forgiven. You have no tax liability on that.
So you would think it's kind of not fair if you don't have to pay tax on the money that you don't get to deduct it. Well, you get to deduct it. So it's a windfall for all of you guys. And that's wonderful. You know, it's not great for the Federal Treasury, but it's wonderful for our dentists. So you get a tax deduction in for these expenses in 2020. So it's a big deal.
Now, I'm going to take a step here and just say that you all need to take a look at these deductibility rules, because right now you're in the process of filing tax returns. You're a corporation, an S corporation or a partnership or an LLC, not a single member, but an LLC that files a form 1065, you are going to have to file your tax return by tomorrow or two days ago when you if you listen to this, when it comes out on Wednesday, that's why we're suggesting an extension. Hopefully many of you have done that.
Because a lot of the states have not conformed to this. For example, California, my state, where we have a lot of listeners to this podcast. California had come out with a law called AB80, which is AB stands for Assembly Bill 80. And we thought this was going to pass to allow small business owners to deduct up to one hundred fifty thousand dollars of PPP expenses. Well, that just kind of faded at the moment. It's not been passed. It's not been signed. We don't know what's going on.
My conjecture that's my opinion is that the states are waiting to see how much money they get from this one point nine trillion dollar stimulus bill that the president, President Biden, signed last week, and maybe if they get a bunch of money, maybe they'll be better off and maybe they'll allow for this deductibility because the states are hurting really badly, too. Again, one of many, many reasons to consider filing an extension on your tax return.
And here we go. This is what you've all been waiting for. What you want to hear about. The new law allowed dentists and other small business owners who took out PPP loans in 2020 as well as in 2021 to be able to retroactively back to March 12th of 2020, used the Employee Retention Tax Credit. So really quickly and then we're going to get into the ERTC, qualify for a PPP round two. And by the way, I want to take a stop here. Well I'll get to this in a second. Here we go.
So you had to have applied for and received a PPP round one loan. If you're a first time PPP loan applicant, there's a separate application you can file and you're not out of luck. You must have used the funds from round one to apply for round two in full and for the purposes required under the CARES Act. I mean, no Rolex watches, no Rolls Royces, no baseball tickets or anything like that. You had to use it for payroll and rent and utilities and all the other things in the law.
You have to have less than three hundred or three hundred employees. And this is if you own if we have any DSO owners listening to this podcast and you have dozens and dozens of dental offices that are going to have these affiliated service and aggregation rules, which we're not going to get into here. But if you are a DSO there are huge six and seven figure opportunities. You should probably send me an email and we can talk about that or be happy to help you.
Your dental practice must have experienced and this is the big one, a 25 percent reduction in gross receipts for any calendar quarter, emphasis on calendar. You cannot use, you know, May, June and July and say, I had a twenty five percent reduction. It's got to be calendar quarter. And for most of you, that calendar quarter is going to be probably the second quarter when most of the dental profession shut down for anywhere from eight to 12 weeks in many cases except for emergency procedures.
So and here's the last thing that I want to point this out and make everybody aware of this. You have until March 31st to apply for this. And actually the filing has to happen by then. So many banks, many of the large banks have stopped accepting applications because they've got to package this all up and get it into the SBA. So many of the large banks have stopped accepting PPP applications. In addition to that, they changed the rules on sole proprietors. And I'm not going to go into that because that's a half hour conversation.
Be aware if you're a sole proprietor or you're an independent contractor, you were required to use your net income from your Schedule C for either 2019 or 2020. Well, a lot of people were complaining about that and saying, well, you know, didn't make a lot of money as a sole proprietor, so I didn't get much of a loan. They just changed the rules a couple of weeks ago so that a sole proprietor can now use their gross income. Now, can you go back and fix that application? Nah, they didn't let you do that.
So those of you have filed, have filed. Those of you who haven't filed, you should take a look at the new form that was put out, the new application for Schedule C Filer's, it's on the website at www.Treasury.gov. Again, if you send me an email AWiederman@EideBailly.com. That's Eide Bailly.com. I can certainly point you in that direction. So if you're going to file sooner rather than later, you don't have to file with the bank that you filed before. It'll be easier to do it. But if they're not accepting applications, you can find another bank.
Here's the good news, the good news is that last week, I think it was on Thursday, I believe it was the House introduced a bill and there is bipartisan support. Now, you're not having hearing trouble. Art Wiederman said that there's bipartisan support for something in Congress. I didn't think that was ever going to happen again. But there is to extend the deadline for filing, especially because of the change in the sole proprietor rules. A lot of the banks either have not or just are not going to change their input forms and their computer systems to comply because they're so close to the deadline.
But the provision in Congress that we believe has a very good chance of passing probably the week of March 15th or March 22nd would be a provision that will allow an extension of time. Two things. Number one, to file for round two, extended from March 31 to May 31, and to give the banks and the SBA an additional 30 days on top of that to process everything.
So Congress realizes that there are more people that want this money. Over half of the money has been allocated. I think the last number I saw was that there's somewhere around one hundred billion dollars left, which is still a lot of money. So if you want this help and this you know, these loans, you can go out and get them, OK? And so that is something you should be aware of.
So they were hopeful that they're going to provide an extension for all of this. And, you know, very, very important. The other thing that this stimulus bill did is if you remember back in March when they passed the CARES Act, they said you're allowed to spend this money on not anything you want, but wages, utilities, rent and interest. Well, you can still I mean, they still under round two we're waiting for guidance. Everybody who's ever lectured or written articles, I mean, we're going to have tattooed on our foreheads we are waiting for guidance. They haven't given us any guidance on the PPP round two yet, but basically. You can use the same ones, mortgage, rent, utilities, but they added several other categories that are going to be very, very important as we talk about the ERTC and the interaction.
Number one, covered operation expenditures, payments for any business software or cloud computing service that facilitates business operations, product or service delivery. The processing payment or tracking of payroll expenses be like probably your payroll service, human resources, sales and billing functions or accounting and tracking of supplies, inventory, record and expenses.
The next one is probably these are called covered property damage caused as if someone came into your dental office and vandalized or looted it. Not likely during public disturbances, as many of you remember during the tensions that went on in many cities across the country. It had to do with the deaths of George, George Floyd and Brianna Taylor. There were disturbances and other things that went on in the last year. There were public disturbances where there was looting and vandalism. Unlikely that that's going to cover your expenses. I'm sorry. Unlikely that you're going to have to deal with that.
Covered supplier costs. Expenditures made to a supplier of goods for the supply of goods that are essential to the operations of the borrower at the time in which the expenditure is made and made pursuant to a contract order or purchase order. In effect, prior to the beginning of the covered period for perishable goods, the contract order or purchase order may have been in effect before or at any time during the covered period. So basically any dental supplies, it looks like they haven't said anything different.
And the big one is covered worker protection expenditures operating or capital expenditures that facilitate the adaption of the business activities or an entity to comply with the requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control of Disease Control or Occupational Safety and Health Administration OSHA, or any equivalent requirements established or guidance issued by state local government.
Bottom line is these are your PPE expenses, PPE expenses, your masks, your gowns, your air conditioning and your ventilation unit. So this is going to be really important, folks, when we get to talking about some of this other stuff of how to get this ERTC. So these are all now allowable as part of your forty percent. OK, this is your forty percent expenditures. Back to the again. In order to get a second round PPP loan, you have to have had at least a twenty five percent reduction in revenues in any calendar quarter.
And there's a great Treasury interim guidance that was published. It's on the Treasury's website, www.Treasury.gov and it was published on January 19th. And it basically the link I'm not going to read it because you won't be able to write it down on this podcast. It basically the link is how the how to calculate revenue reduction and maximum loan amount. It tells you how to figure you're twenty five percent reduction and how to figure out your actual loan amount. And again, we talked about the sole proprietors and the independent contractors you might want to take a look at. This is also a new application borrower application form for Schedule C filers using gross income and all that information is there for you.
OK, now what you're really, really, really waiting for what is going on with this Employee Retention Tax Credit?
So on December twenty seven, they passed this law and what they said was, now you can use the ERTC even if you got a PPP loan and you can use wages all the back, all the way back to January, I'm sorry, March 12th. So we CPAs, we had Eide Bailly, my good friend, Jim Donovan, Joe Stoddard, Adam Sweet, these are our lead PPP and ERTC folks that have been living and breathing this stuff. And we go back and forth all the time with information and sharing stuff, as do all the members of the Academy of CPAs. I mean, this has been just one year of this whole brand new world we had to learn about.
And it was, this is great, we can do this. And but, you know, how does this PPP forgiveness work with the ERTC, because one of the things in the law, it said, is that you cannot use wages to claim the ERTC that you are using to claim the PPP forgiveness, because both of them are based on wages that you're paying. And if you want to read the. So on March 1st, Congress, I'm sorry, the Treasury finally gave us the guidance and the guidance was Notice 2021-20, which if you are having trouble sleeping and insomnia is an issue for you.
You can read one hundred three pages of guidance. I've read it three times. The folks who are dealing with all this and writing articles at the National Law Review and in Forbes magazine and probably read it more than that. But you can just Google Notice 2021-20. And this is the guidance that they gave us is how this works. So let's work around here how, first of all, what dental practices qualify for the ERTC.
So we're going to figure out how do we get to the end game is how do I get full PPP forgiveness of one hundred percent of my loan and get this credit? OK, so first of all, how do you qualify for the credit? And it's a big credit, as you'll see in a little bit. Two ways you qualify. Number one, if your practice realized a 50 percent or greater reduction in gross receipts in any calendar quarter of 2020 as compared to the same calendar quarter in 2019, you qualify.
Now, when do you qualify? You qualify probably for the second quarter of 2020. But the way the law works is that you continue to qualify until the end of the quarter in which you have a greater than eighty, a less than 80 percent, a less than 20 percent reduction in revenues. So what does that mean. That means that all of you are going to qualify if you qualify for the second quarter, that you had a 50 percent reduction, which is realistically the only quarter that it makes sense that most dental practices, unless there is a dental practice out there that just does not follow what has been happening, it's going to be the second quarter.
So if you qualify for the second quarter, you're going to qualify for the third quarter. And that's really important. If you had and then in the third quarter, most dental practices came back because of all the pent up demand and everything that was going on. So most of you probably did not have a greater than 20 percent reduction, if you will, going back that many of you might have actually been up for the third quarter. So that means that at the very least, you're probably going to be able to use the wages you paid for your employees for the third second quarter, the third quarter. So from April 1st to September 30th. So the months of April, May, June, July, August and September, that's six months.
And as you're going to see, you need ten thousand dollars per employee during those six months in order to get the maximum credit for 2020, which is five thousand dollars. The other way that you can get this credit. So before I go on to the other way, which is what's called a government order shutdown, so basically, like I say, April through June of the second quarter, you'll qualify for the third quarter. And so the first thing you need to do is look at your gross receipts for the second quarter of 2020. Compare them to your gross receipts for the second quarter of 2019. And if they are more than 50 percent less, then you qualify for wages paid in both quarters and they are calendar quarters we're talking about folks.
It's not you can't just pick. Well, you know, we should be able to pick March, April and May. No they don't let you do that and stuff like that. So 50 percent reduction, you get to the bonus round for the second and the third quarters. All right. The second way that you qualify, which is probably the least likely, although for many of you in many states you may qualify, you have to have been under a government order shutdown. I can't tell you folks how many people have called me, emailed me Art, we had to shut down the ADA said we had to shut down, the CDC. The Center for Disease Control said we have to shut down.
Well, you know what, folks, they came out with these rules as to what is a government order. OK, so I'm going to read a little bit to this. This is question number 10 from the Employee Retention Tax Credit guidance that we got on March 1st. Notice 2021-20. So what orders from an appropriate government authority may be taken into account for purposes of eligibility of the Employee Retention Tax Credit.
So says orders, proclamations or decrees from the federal government or any state local government may be taken into account by an employer as, quote, orders from an appropriate governmental authority only if they limit commerce, travel or group meetings due to the coronavirus disease. 2019 coronavirus disease 2019 and related to the suspension of an employer's operation of its trade or business. OK, now it doesn't have to be a federal government order, OK? It could be a state. It can be a county. It can be a city. It can be, you know, whatever governmental body that you are part of it.
They gave an order that said you have to shut down, then that counts. What ADA said, what CDC says does not count. So here we go. This is important whether government orders, proclamations or decrees or government orders is determined without regarding the level of enforcement of the government order. Statements from a government official, including comments made during press conferences or interviews with the media, don't rise to the level of the government ordering. This is the key thing. So follow this carefully, folks.
Additionally, the declaration of a state of emergency by a governmental authority is not sufficient to rise to the level of a government order if it does not limit commerce, travel or group meetings in any manner. So when I read that, you're going to say, well, Art, you know what? Our governor declared a state of emergency. Our president declared a state of emergency, and it limited my commerce. I wasn't able to practice. People didn't come into my dental office. OK, but let me continue. Further, such a declaration that limits commerce, travel or group meetings, but does so in a manner that does not relate to the suspension of an employer's operation, of its trade or business, does not rise to the level of a government order for purposes of the employer's determination of its eligibility for the Employee Retention Credit.
So what does that mean? That means that even though you had to shut your practice down for most of you, except for emergency procedures, if it was a recommendation, if it was not an order, in other words, the order would need to say something to the effect of that essential businesses include dental practices for emergency procedures because you're allowed to qualify for this credit if you even had a partial shutdown that represents at least 10 percent of your business. Well, think about it this way, folks. If you were shut down by the city of X or the county of Y, and that order from their health department said you must shut down except for emergency procedures, the non-emergency procedure part of your business is 90 plus percent of your business in the dental practice. So you would qualify.
There are many states and counties that have done this. I am. You know, it's just really difficult. So if you don't have a 50 percent or greater reduction, what you want to do is to take a look and see were you under a government order, county, city. And you just check, check with your city. Check with your county, check with your state. Many states did issue government shutdown orders to dental practices. I don't have a list, but you should check into your state.
OK, so either a 50 percent reduction or in revenues in any calendar quarter of 2020 after March 12th. So basically for you, the second quarter or a government shutdown, as I described it. So how do you calculate the credit? The credit is calculated by taking 50 percent of qualifying wages. So remember I told you that you have the second quarter and you have the third quarter. So what you need to do is look at all the employees that you paid in those quarters and it's you'd get 50 percent of their wages. And it's basically, you know, basically W-2 wages. There's lots of rules that I don't have time to get into here, it includes the wages you pay for employees.
It does not include any wages that you paid under the qualified sick leave or the family leave rules that you're already receiving a credit for. That's not fair. You get to include group health plan expenses paid through your dental practice for your employees. We believe, based on what we've read, that owner dentists, if you know, if you qualify under the you know, for this credit that owner dentists and their spouses are included, certain relatives are not included.
The more we're reading about this, this has been kind of the way we believe that this work so the owner doctor and if the spouses included, that you can include their wages. We believe that. Now for employers who have over one hundred employees you can only take into account employees wages paid to employees when they were not providing services, but getting paid. So, for example, if you are a multiple practice owner and you had one hundred and fifty employees and you were continuing to pay them even though your dental offices were shut down because you got a PPP loan and you wanted to keep them off of unemployment, those wages qualify.
But if you had, again, only wages paid to employees when they were not providing services and again, this is for over one hundred employees. For most of you who have less than one hundred employees, that's not a big deal. Again, qualified health plan expenses can be part of these wages. Now the wages are limited to ten thousand dollars. So what we need to do, folks, is to get to ten thousand dollars talking quarter two and quarter three of 2020. We need wages of ten thousand dollars. That's a very important number. Keep that in mind as we continue this conversation.
So that includes the wages that we pay to our employees as well as the group health expenses and basically question number 40. Yes, I've read all these questions three or four times. Yes, a qualified health plan expenses are included. However, amounts that the employee paid with after tax contributions are not considered qualified health plan expenses because they are included in their wages. The amount of qualified health expenses take into account generally includes both the portion of the cost paid by the eligible employer and the portion of the cost paid by the employee with pre tax salary reductions contributions. Because those amounts usually don't end up in many cases on the W-2.
And small eligible employers can actually treat health plan expenses if you paid health plan expenses but you didn't pay employees during that time, but you kept them on the health plan because you didn't want them to lose their insurance coverage, you can count those two. So real simple examples here. So let's and I'll take this right from the notice. So Employer A is an eligible employer paid ten thousand dollars in wages in the second quarter to Employee B. Very simple. Their credit is 50 percent. Five thousand dollars. Employer C is an eligible employer pays eight thousand in wages to Employee D in the second quarter and eight thousand in the third quarter.
So that doctor who's going to get it for the second and the third quarter is going to get a four thousand dollar tax credit in the second quarter for the eight thousand wages. And they're going to get a one thousand dollar credit in the third quarter because the maximum we can take into account is ten thousand wages. So eight thousand the second quarter and two thousand the third. That's why it's important that we count the second and the third quarter, if you will.
And so how do we this? So we get this credit one. And the way you're going to get the credit, by the way, folks, as you're going to end up in general filing an amended payroll tax return. They came out with these rules, some of these rules on like January twenty seventh before this notice. And they said, OK, on January 27th, we want you to go ahead and include it in your fourth quarter payroll return. So they put this guidance on January 27th or 28th and that payroll return is due January thirty first. So nobody did that.
The bottom line is you're going to file an amended payroll tax return, probably for the second and the third quarter. So now how do we get this credit and get our PPP forgiveness and this is what's really important. So follow me here. I'm not going to read you what the notice deems is an eligible employer because your head will hurt and you'll never listen to my podcast again and you'll hate me and you'll put up a dartboard that's got my picture on it. And I don't want that to happen. Here's the bottom line, OK?
The bottom line is we have to break this discussion into two pieces. Doctors that have already filed for SBA forgiveness for round one, and doctors who have hopefully not yet filed. And this is why we've been telling doctors for months, there's no rush to file. We wait for the guide to wait. And we've had doctors who have filed they want to get done. They don't want to do it.
So basically, remember, the most important point here I'm going to tell you is that your wages that you pay in the second and the third quarter and in your covered period, you cannot use the same wages for PPP as you use for ERTC. OK, you cannot do that. You have to, and so what we have to do is we have to bifurcate the wages and we have to use enough wages to get full forgiveness and leave enough. Actually what we want to do first is to use enough wages to get the tax credit and then have enough wages left to use for 60 percent of our wages to get PPP forgiveness. So that's the whole game plan here.
So for dentists who have already filed for PPP forgiveness, they give seven examples of this interaction. The bottom line, folks, is if you've already filed for forgiveness and you only wrote down wages and you didn't either limit the amount of your payroll costs to 60 percent of your total PPP loan and didn't include non payroll costs, you just put your wages amount, the banks said, oh, just put the wage amounts, it's easier. You will be probably severely limited and there's no do over for the Employee Retention Tax Credit. Can't file an amended application for forgiveness. Once you file, you've set the stage for how you can calculate the wages.
So, for example, here's example number two of this of this deal of this Notice 2021-20. Let's say you had a PPP loan of two hundred thousand dollars, your total qualified wages paid during the second and third quarters, which would normally qualify for the ERTC, was two hundred fifty thousand. So your PPP loan two hundred. Your ERTC what your wages paid in the second or third quarters two fifty. On the forgiveness application all you put down was two hundred thousand as payroll costs. No big deal. Got full SBA forgiveness. You got one hundred percent forgiveness.
So what that says under these rules that they came out with on March 1st is that this particular dentist or employer doesn't matter is deemed to have made an election not to take into account two hundred thousand dollars of wages for purposes of the Employee Retention Credit. So you only needed. So this example, I'll get to it in the next example. So you only needed basically 60 percent of your two hundred thousand. Needed one hundred and twenty, but you put two hundred down and you had two hundred fifty in wages. You can only use fifty thousand dollars in wages to apply for the Employee Retention Tax Credit.
Let's look at example number three. Same thing, borrower got a two hundred thousand dollar PPP loan, borrower paid two hundred thousand in eligible payroll costs during the second and third quarter of 2020. They qualified, but they also paid seventy thousand of non payroll costs rent, utilities, PPE, etc. On the borrower's application, they did the same thing. They put down two hundred thousand and they didn't put down any of the seventy thousand and they got a full forgiveness of their loan. Well, what happened is they could have put down one hundred thirty of payroll costs and seventy of eligible expenses because remember you need 60 percent. But they didn't do that.
Employer C cannot use that seventy thousand dollars, OK? For I'll just read it. Employer C cannot reduce the deemed election by the amount of the other expenses. So by excluding those non payroll costs on the forgiveness form that qualify for the forgiveness, the seventy thousand that borrower lost the ability to use that seventy thousand dollars to reduce the amount of wages they put on the application, which would have basically allowed you to use that seventy thousand towards the ERTC.
An example for verifies if the borrower would have put down the 70,000 of non payroll costs on their PPP application form that qualified, they would have been allowed to use that. So the bottom line is, folks, it's important. And here's the basic end game here. This is the end game. Number one, we only need 60 percent of the PPP loan amount to get us forgiveness. And what this notice says is that we can basically use the wages that we paid because remember, we got two periods here. You've got the six of the six months of the second and the third quarter, which are going to be the ERTC period and the twenty four weeks, which is going to have that two months for the most part, but it's going to have some other periods that are not included in the ERTC period. So what we want to do is we want to figure out all of this. What were our wages during the PPP forgiveness during the covered period, what were our wages during the six months of the second and third quarter, all we need is to take 60 percent of the PPP loan amount and put it to wages.
And remember, we can also use a retirement plan and health insurance and all that kind of stuff, and every other dollar other than 60 percent we can use for the ERTC and all I need is ten thousand dollars per employee. So your covered period is the twenty four weeks, right? Slightly different than the six months. So in my other example, May 7th until what was it, some time in October is my covered period, but I think it was October twenty second. But for the ERTC it's April one is September 30th, so a little bit of a different period.
So what we want to do is think about it this way. Your six months for the ERTC start April 1, there was no PPP loan program on April 1. So any wages paid between April 1 and the date you got your PPP loan we use exclusively, I repeat, exclusively for the ERTC because they're not forgivable. OK, any wages that we pay after September 30th that are in your covered period, OK in your covered period.
So let's say that my covered period ends October the 30th. Well, for the whole month of October, those wages are going to use be used exclusively for PPP because they're not in the period of the ERTC. And again, we believe there's authority that allows more than a 50 percent owner and his or her spouse who are paid wages from an S corporation to qualify for the ERTC so we can use those wages. That's another potential, maybe ten thousand dollars of credit that we get. And remember, folks, this is a tax credit. This is not a deduction. So if we're limiting payroll costs to 60 percent. So the whole game is you.
Now we're talking to the people that have not filed for forgiveness. We go to file for forgiveness within the ten month period after the end of your covered period. The end game is we want to take all the wages that we paid and we want to break them out. We want to take 60 percent of those wages. And we want to put them on the application form. We want to use, that means that we need to use 40 percent of the PPP loan amount for the other expenses rent, utilities, interest supplies, PPE. This is what we want to do. So if we can do that, then we can get full. Yeah, we can get ten thousand dollars of wages for every employee. And all we need is those other wages that are not part of the ten thousand. And we want those wages to go towards the PPP.
It's hard to understand on a podcast. But again, we at Eide Bailly the Academy of Dental CPAs, we understand how this works. So if you would like our help, by the way, in doing this and I'll repeat this at the end of the show, if you would like our help in getting this, we have a whole group that is doing this. We've got a very, very intricate spreadsheet that is doing this. And we are going to be saving our clients and non clients, whoever engages us, tens of thousands of dollars in this tax credit.
So if you are interested in having us help you with this, email me at awiederman@EideBailly.com. If you are with a member ADCPA firm, get in contact with your CPA firm and they'll help you with it. But we are geared up to do this big time. And so just want to let you know that.
And back to the conversation is if you don't have at least 40 percent of the PPP loan amount paid in eligible, non payroll costs, what you may end up having to do is to take a little more than 60 percent of your wages so that you get full forgiveness. So this is very important. And so what you want to do is you want to work with somebody who understands this.
Now, I do want to point this out to you. So I happen to be talking to I mentioned the sad passing of my good friend Larry Rosen. I was talking to his son Mark earlier today, and he and I were talking about this. And here's the deal, folks. Number one, there are companies out there that are charging 30 to 35 percent of the tax savings. So if you get a hundred thousand dollar loan, I mean, ERTC credit, you're going to get charged thirty to thirty five thousand dollars. Reputable CPA firms like Eide Bailly and the Academy of Dental CPA groups, we are not charging anywhere near that amount. So be very careful.
The other thing that I was talking to Mark about that you really need to be careful about is that payroll services are saying, oh, we'll do this for you, I will do it for a very low cost or for free or whatever they're going to tell you. So Mark was telling me a story about what they were doing is that he said he had a client, that the payroll service said, well, we'll just do this. And they just took some calculation of the wages that allowed for a seventy thousand dollar credit. It was basically any of the wages that were not used for PPP and they didn't do this analysis that I've been talking to about for the last forty five minutes.
OK, so when Mark was telling me that that, you know, the client called him, said, is this right? And they did the calculations and they got three hundred and fifty thousand dollar Employee Retention Tax Credit and the payroll service had gotten seventy thousand. So five times. Do not let the payroll services do your amended, they need to do your amended returns. And if they charge you, that's fine. But do not let them do these calculations because they are not set up to understand the intricacy of all of these rules. Really important that you know that. And you don't have to pay, if they solicit you, these companies and they're coming after this big, big fee money involved in this. OK, if someone's going to charge you twenty five or 30 percent of the cost. Don't do it.
We as CPAs are not allowed to charge contingent fees. There is this little publication called Circular 230, which is basically our CPA rules of the road, as initiated by the Internal Revenue Service. So we do not, cannot and will not charge you a percentage. That's like there are unscrupulous tax preparers out there that charge a percentage of the refund that they get you. We would lose our licenses. We would be in a bad place if we ever did that. And again, you know, firms like Eide Bailly, firms like the firms in the ADCPA that are ethical. Absolutely. By the book firms and do it by the rules. They don't do that. So we charge a fee, you know, and as do the ADCPA firms. And but it is not a contingent fee.
And in fact, I had a conversation with a doctor the other day who I said to the doctor, you know, he's a new client. He says, well, yeah, I had a 50 percent reduction as well. How many employees you have? Well, there's three of us, including me. So there's three. I said, OK, so your credit could be fifteen thousand dollars. And I said, you know what? I'll be really honest with you for the amount of money that we're going to get you back and the amount of time that you got to spend providing us information and the amount of time that we have to do to set it up and work the spreadsheets and go through all the rules. It's not worth it. It's just not worth it. Is it worth it for twenty five or thirty or thirty five thousand dollars? I think so. But many of you, if you have 10 employees, that's fifty thousand dollars. If you have 20 employees, it's a hundred thousand for multiple practice owners who have less than one hundred employees. So you have 80 employees, 80 times five is four hundred thousand dollars. So this is definitely worth it.
So, again, if we can help you here at Eide Bailly, send me an email and we'll put you on the list. And we have an intake form and that's awiederman@EideBailly.com. So the end game of all of this is to use as little in payroll costs as we can to obtain full PPP forgiveness and to use the remaining wages in group health insurance costs to maximize the ERTC to get us to ten thousand dollars. So as soon as we get to ten thousand dollars in wages for each employee in the second and third quarters for the most part, then the rest of the wages we can use for PPP or vice versa. As soon as we get to 60 percent, we can use the other wages for ERTC.
And again, this is really important that, you know, again, we have intricate spreadsheets that do this calculation. And again, don't let a payroll service do it for you. Don't go out and pay a third of the tax savings. I don't care what kind of song and dance. There are CPAs that are ethical CPAs, again, like the ADCPA and like Eide Bailly that will help you with this.
And also, when you do this, don't just put, even if you've got the whole ten thousand per employee that's covered, don't just, and you have extra wages that you paid during the covered period that are not used for ERTC, don't just stick to 60 percent. What you need to do is you need to have a cushion. So if you have an extra, you know, ten thousand dollars in wages, you've got your ERTC covered. And Art said, just go 60 percent. No, no. If you've got extra wages that you're not using for ERTC, use them on your PPP application because then you've got a cushion in case you made a mistake or in case the banker says, well, I don't think this is right. Well, you've got extra if you have right on the dot 60 percent than that 60 percent, you have no wiggle room in case there's a mistake here.
So, again, I did this webinar and I have a basic example of this, but it's just really hard to read over the phone at over a podcast. The bottom line again is, folks, any wages that you got between April 1 and the date you get your PPP loan should be used exclusively for ERTC. Any wages you paid after September 30th. So any time in October that are part of your covered period for PPP should only be used for PPP. You want to get to 60 percent of your total PPP loan. So you use that amount of wages and the rest go for ERTC.
And again, if you filed for forgiveness, you have kind of made your own bed and there's not a lot that I can do to help. Now, this does get better, although I do not think that this is going to apply for dentists in 2021. So everything we've been talking about in this notice that we've been talking about have been solely for 2020. Congress. I mean, Treasury said in this notice that we will come out soon with the rules for 2021. Soon is defined as when Art Wiederman wins the Masters and the Players Championship. Those are golf tournaments, folks. If you're not a golfer, that will never happen. So we don't know when these rules will come out. We think they'll come out just joking in the next 30, 60 days, we hope. I mean, everybody's really busy.
There is also serious talk, by the way, of like they did last year, putting off the tax deadline. We'll see if that happens. Do check on Eide Bailly's website. We have the most up to date information on new tax laws and all these things, which we're not talking about tonight. So do check on that.
So in order to qualify, they have now they expanded in this law this December twenty seventh law. They expanded the ERTC not only for 2020 because it was only for 2020 under the CARES Act. For 2021 it was for the first and second quarter of 2021. And for the second, first and second quarter of 2021 here's how this worked. Instead of having a 50 percent reduction in gross receipts, you only need a 20 percent reduction in gross receipts. OK, that's a big deal. And the maximum credit in 2021. Remember I told you in 2020 it's five thousand per employee for the whole year of the period of March 12th through December 31. Well for 2021, the maximum credit per employee per quarter is seventy percent of ten thousand, not fifty seventy percent. So seven thousand per quarter.
So for example if you had a 50 percent reduction in the second quarter of 2020 and you had ten employees, you could get a fifty thousand dollar credit, OK, if you had a 20 percent reduction in the first and second quarter. So this is the first quarter of 2021 compared to the first quarter of 2019 or the immediately preceding quarter. Fourth quarter of 2020 versus fourth quarter of 2019 or for the second quarter it would be you'd use the first quarter. It's kind of confusing, but generally you would compare the first quarter of 2021 to the first quarter of 2019 or you can use the immediately preceding quarter.
So instead of fifty thousand for the year you're talking seventy thousand for the quarter. So that would be the first quarter, the second quarter and under the bill that President Biden just signed last week, the one point nine trillion dollar relief package just signed it last week, I think it was on Thursday he signed it. And this is Sunday. They expanded this to the third quarter and the fourth quarter and they opened it up to some startup businesses. I'm not going to get into that.
I don't think a lot of dentists are going to qualify because the dental profession is doing pretty darn well. But if you do take a look at this, this is huge, huge, huge, huge, huge, huge. OK, so. That is kind of how that works for 2020 and 2021. And one more thing for large groups. So again, anybody who is a DSO, they increased the, remember I told you that for employers and groups that have more than one hundred employees, you were only allowed to take the credit based on the amount of wages you paid to people that were actually not working, that were laid off or that were furloughed if you were. But you were still paying them wages. Well, that number for 2021 increases from one hundred employees to five hundred. So if you have 300 employees and your business had a 20 percent reduction, so you have three hundred employees in the second, let's say your business had a 20 percent reduction in the second quarter and I'm sorry, in the first quarter of 2021 and a 20 percent reduction in the second quarter.
So I have three hundred employees. Times seven thousand dollars. That's two hundred and thirty three hundred times seven is two hundred and ten thousand dollars per quarter. So if your dental practice is really suffering for whatever reason and there's a 20 percent reduction you could have if you have three hundred employees, that could be huge for you. It could be hundreds of thousands of dollars.
Now, a very important thing that you need to understand, and this is a big deal and another reason why you want to file extensions or consider. You can't double dip. So if you take a credit for the Employee Retention Tax Credit, right back to my example, we have 10 employees and in the second and third quarter, they were all paid ten thousand dollars in wages. So you get a fifty thousand dollar credit. What they have said is that for 2021, 2020, you get a fifty thousand dollar credit. It's not going to be on your personal or corporate tax return. It's going to be an amended return. And what they're going to do is they're going to reduce your federal employer payroll taxes by whatever you paid in and the difference. So let's say that you got a 50,000 credit in the second quarter and you paid ten thousand an employer, FICA and Medicare. So you get that 10,000 back and the other 40, they give you a check.
But for that 50,000, you do not get a deduction. And Congress, we were hoping they would say, you know, since you claim the credit in 2021, just add it to your 2021 income, those 50,000 wages that we're getting a credit we can't take a deduction for, although they did so they said that you're going to have to file include an addition to your income for those fifty thousand of wages that you're taking the credit on. That's why we want you to extend, because most CPAs are not going to do this work until after April 15th, which is after when you would have filed your returns if you filed on time.
Very, very important to know that, that if you filed your returns already and you file your personal return on time, you're going to have to file an amended return if you get this credit in order to not take that as a deduction. So the 50,000 dollars. And remember, this is only a federal issue. It's not a state issue. It's a federal credit. So if you're in a twenty four percent tax bracket, you have fifty thousand dollars. OK, so what's 50 thousand times twenty four percent is twelve thousand dollars. So your net benefit of the credits is going to be about thirty eight thousand dollars. That's still a pretty darn good deal. So anyway, you have to keep lots of records. You have to keep government orders.
If you have those records the employer relied on to determine whether there was a portion of your operations that were suspended, records to show that you had the decline in gross receipts, what were paid in wages. And again, CPA firms like Eide Bailly and the ADCPA members, they are going to be keeping copious records, doing reports and have it in their files so that if you ever get this look that there's no problem.
And the good news is you have generally three years from the due date of your payroll tax return, including extensions, which I mean just say three years from the due date of your return to file for an amended return on the ERTC, it's done on a payroll return, not an income tax return. So we got plenty of time to do this, but we don't have plenty of time to file for forgiveness. So that's why we are going to be doing this work very, very quickly between now and August. And we're starting to accumulate.
So again, folks, if. You have a desire if you're listening this podcast and your CPA does not know what ERTC means or what PPP means, and you had a 50 percent reduction in your revenues in the second quarter of 2020, we would be more than happy to help you and just do the math. You know, multiply the number of employees that you had that you paid 10 grand to in the second and third quarters of 2020 twenty five thousand dollars. And that's the amount of money you got at stake that you can get and get PPP forgiveness. If you haven't filed, we'd be happy to just send me an email if you want us to help you with this at awiederman@EideBailly.com. We'll be more than happy to help you with that.
I'm exhausted again. Every time I do one of these podcast folks that I go through all these rules and there's just so much I couldn't tell you because it's just not enough time. It would be a 12 hour podcast, but this is a golden opportunity to score a bunch of government money. And it is legal. And the government wants you to go after this money and you should.
So, again, give me an email. Send me an email, awiederman@EideBailly.com I'd be happy to help you with that. If you are a client of one of our ADCPA member firms, call your CPA over there. They know about this. We live and breathe it every single day and we would be more than happy to help you.
We are having our Business of Dentistry series on this coming Wednesday night March 17th. It's going to be my friend Kathleen Johnson, who is going to be on the webinar, and she's going to be talking about due diligence in buying a dental practice. Please go to www.EideBailly.com/dentalseries and all the information is there and you can register.
Well, folks, that is it. Again, be sure to go to our partner Decisions in Dentistry magazine www.DecisionsinDentistry.com great clinical content and everything. Fantastic magazine. You should go on their website and register for their publications. And if you're not working with a dental CPA we at Eide Bailly we're available to help you. ADCPA is there. We're all here to help you www.ADCPA.com. And again my email is awiederman@EideBailly.com and that will be in the show notes.
Well, folks, uh, God bless every single one of you. Our podcast is exploding. Thank you so much for all the kind emails and everything that I get. And from all over the country. I've been trying to answer all your questions and I'm very fortunate to be working with dentists and to have dedicated my career to the dental profession. Very proud of the work we do, very proud of the dental profession and how you guys have come through this one year.
It's one year, one year that we've been through this. It is so hard to believe. And let us just hope and pray that this is the first and last time that we have to deal with a pandemic in our lifetimes. I'm very hopeful that and with that, I will bid you adieu for the evening here in Southern California. My name is Art Wiederman. The show is the Art of Dental Finance and Management with Art Wiederman, CPA. And we will see you next time. Thank you again for the honor of your and privilege of your time. We'll see you next time.