SMALL & MIDSIZE BUSINESSES HIT BY COVID-19
SMALL & MIDSIZE BUSINESSES HIT BY COVID-19
3 New Tax Credits to Help Relieve Your Financial Burden
Business owners … you may qualify for one or more of three new tax credits announced and launched by the Treasury Department and the Internal Revenue Service.
- Employee Retention Credit
- Paid Sick Leave Credit
- Paid Family Leave Credit
Each of these credits are designed to encourage businesses to keep employees on the payroll plus fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees. Qualifying for one or more of these business tax credits will deliver a financial win/win for employers and workers alike.
We’ll get into the details of each of the credits in a moment. As a preface, let’s start with a brief lesson on “What are tax credits?” The best way to describe tax credits are in contrast to what most taxpayers understand … tax deductions. Tax deductions reduce the amount of your income subject to tax. Tax credits directly reduce the tax itself.
For example, assume your business spends $5,000 on equipment or some other item that results in a tax deduction. That will reduce your taxable income by $5,000. In a 25% tax bracket, you would save $1,250 in taxes.
Now compare that with a $5,000 tax credit. That amount is subtracted from the amount of tax owed as opposed to an offset to income … as is the case with a tax deduction. Result: Your tax bill is reduced by the full $5,000 tax credit.
Why These 3 Tax Credit Breaks for Businesses?
The intent is to help businesses and employees weather the C-19 pandemic. As with the many other federal tax credits, the above three are business entitlement subsidies for any company that meets the legal criteria. With that background, let’s look at an overview of the provisions of each.
Employee Retention Credit
Again, this credit is designed to encourage businesses to keep employees on their payroll. The tax credit equals 50 percent of up to $10,000 in wages paid by an eligible employer including a portion of employer provided health care costs.
Eligibility is contingent on the business, regardless of size, being financially impacted by COVID-19. The exceptions are state and local governments and small businesses that take small business loans.
To be eligible, employers must be in one of two categories which must qualify each calendar quarter
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
There are differences in wages that qualify for employers with 100 employees or less and those with more than 100 employees.
Eligible employers will be immediately reimbursed for the credit by reducing their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.
Note: Click here for a complete rundown at the IRS website.
Better yet, give us a call and we’ll quickly help you determine if you qualify and for how much.
Paid Sick Leave Credit & Family Leave Credit
Small and midsize employers can claim two new refundable payroll tax credits … paid sick leave credit and the paid family leave credit. The design and intent are to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees … and to make that repayment immediate.
The Paid Sick Leave Credit applies for employees unable to work (including telework) because of Coronavirus quarantine or self-quarantine or 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.
The Family Leave Credit reimburses employers for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 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 2/3 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 reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Here’s a quick summary of these credits.
Employer Reimbursements:
- 100% reimbursement for required paid leave.
- Cost of health insurance is included in the credit.
- Employers do not owe their share of social security and Medicare taxes on the paid leave.
- Self-employed individuals receive an equivalent credit.
Quick & Easy Reimbursement:
- Dollar-for-dollar tax offset against the employer’s payroll taxes
- The IRS will send any refunds owed as quickly as possible.
Note: Click here for a complete rundown at the IRS website.
Better yet, give us a call and we’ll quickly help you determine if you qualify and for how much.
