The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several options for businesses to receive tax relief and other financial support. The options for tax relief include payroll tax credits and deferrals, credits for COVID-19 related paid leave, and loosening requirements and limitations introduced with the 2017 Tax Cuts and Jobs Act (TCJA).
CARES Act Payroll Tax Credit for Employee Retention
For businesses (including sole proprietorships) that retain their employees during the COVID-19 crisis, the CARES Act creates a refundable payroll tax credit equal to 50% of wages and compensation with an overall limit on wages per employee of $10,000. The credit is available through December 31, 2020.
This credit is available for employers of all sizes if they experience a 50% reduction in quarterly receipts (due to the crisis) or have been fully or partially suspended due to a government order. Employers with 100 or fewer full-time employees may claim a credit for wages paid to all employees (up to $10,000 per employee). Employers with over 100 employees may claim a credit for employees who are either furloughed or have reduced hours due to the employer’s closure or economic hardship.
Applying the Payroll Tax Credit
Businesses (including sole proprietorships) and nonprofits can claim the credit against their quarterly payroll tax liability. The US Department of the Treasury is authorized to waive penalties for those who do not deposit applicable payroll taxes in anticipation of receiving the credit and to make advance payments of the credit.
Note: Employers who take the SBA paycheck protection loan are not eligible for this tax credit.
CARES Act Tax Credits for Paid Leave
Small and medium-sized businesses (less than 500 employees, including sole proprietorships) and nonprofits are eligible to claim credits for costs related to giving employees coronavirus-related paid leave, whether for the employee’s health or to care for family members. Eligible employers will receive 100% reimbursement for paid leave related to COVID-19, including health insurance costs. The US Department of the Treasury is authorized to provide advance payments of these tax credits, using either an immediate dollar-for-dollar tax offset against payroll taxes or sending a refund payment.
CARES Act Payroll Tax Deferral
Employers may delay paying the employer-portion of payroll taxes through December 31, 2020. The deferred amount will be due in two installments – the first payment of 50% before December 31, 2021, and the remainder before December 31, 2022.
Note: Employers who take the SBA paycheck protection loan are not eligible for this deferral.
Other Business Tax Relief via the CARES Act
In addition to the payroll tax credits and tax deferral, other forms of tax relief are available. This relief includes changes to the requirements for net operating losses (NOLs) and limitations on business interest deductions, as well as entitling qualified improvement property (QIP) investments to 100% recovery over 15 years. Additionally, single-employer pension plans may delay quarterly contributions for 2020 until the end of the year.
Take Action Now to Get Business Tax Relief via the CARES Act
To ensure you are participating within the time constraints of the programs, and so that you can get the financial support needed for your business during this challenging time, it’s best to get started on the paperwork as soon as you can. It’s also important to take action on the other financial support available via the CARES Act.
As news about the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act comes out, we will continue to provide updates on this blog post and additional blog posts. Sign-up for our FlexTeam Newsletter to receive all the latest news about CARES and tips for activating on-demand consultants and advisors.
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.