If your business has been affected by COVID-19 and you have employees, then you’ll want to check out these 3 new important credits.
Employee Retention Credit:
The employee retention credit is designed to keep employees on the payroll. The eligible employer whose business has been financially impacted by COVID-19 gets refundable tax credit of 50 percent of up to $10,000 in wages paid affected employees.
The credit is available to all employers regardless of size. There are only two exceptions: State and local governments and small businesses that take a PPP loan.
Qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter, OR
- The employer’s gross receipts are below 50 percent of the comparable quarter in 2019. Once the employer’s gross receipts go above 80 percent of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Employers will need to calculate whether they qualify each quarter.
One of the most controversial parts of the new tax breaks, grants and loans, has to do with SBA affiliated companies. In fact, all I need to do is talk about it in an email and I get emails about people telling me I’m wrong! They filed and got more than one PPP loan. They reason, if it wasn’t legal, the lender surely would have caught them.
Unfortunately, the SBA has repeatedly stated the rules for affiliated companies. If you own 50% or more than one company, that company is combined with other companies where you own more than 50% so the companies are added together and act just like one company.
That means you can only qualify for one PPP loan for all of your businesses. But there is an added wrinkle when it comes to PPP loans, the employee retention credit and affiliated companies. You know that you can’t get the employee retention credit if you have a PPP loan. But the same is also true if you have an affiliated company with a PPP. If one gets the loan, then all of the owner affiliated companies also are precluded from getting from employee retention credit.
Paid Sick Leave Credit and Family Leave Credit:
There is another credit that came from the Families First Coronavirus Act.
The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of coronavirus quarantine, self-quarantine or who has coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
In other words, the employer pays the employee and then the employer then gets a tax credit.
The employer can also receive the tax credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child’s school is closed due to Coronavirus. Those employees are entitled to paid leave for up to two weeks (up to 80 hours) at two-thirds of the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Employers can be immediately reimbursed for the credit by taking it against payroll taxes that are due.
Eligible employers are entitled to immediately receive a tax credit for the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of 4/1/2020 – 12/31/2020. The refundable credit is applied against employment taxes on wages paid to all employees. Employers can be immediately reimbursed the amount of the credit for the payments made to employees by reducing their required payroll tax deposits of the money that has been withheld from employees’ wages.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their Form 941 quarterly employment tax returns, beginning with the second quarter.
Since the credits are refundable, if the required employment taxes are less than the credit, the employer will receive the cash. Employers can receive that amount in advance by completing Form 7200, “Advance Payment of Employer Credits Due to COVID-19.”
Tax credits and deductions are featured in CoronaTax: Free Money! New Opportunities! available at