There are several potential tax benefits available to small business owners impacted by the COVID-19 pandemic. These programs offer financial relief – immediate in some cases – to help entrepreneurs weather the ongoing storm of COVID-19. However, these tax relief opportunities are not permanent. Some of these programs are set to end on December 31, 2020, absent further Congressional action. Understanding program expiration dates is key to proactive planning for 2021. Here are the essential tax relief programs for small businesses due to end in December.
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Employer Payroll Tax Deferral
One option businesses have to keep more money on hand right now is taking advantage of the payroll tax deferral option, part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). There has been a lot of news about the employee-side payroll tax deferral opportunity, but the employer-side deferral is also something your business may want to consider.
Under this program, businesses may delay payment of the 6.2% employer portion of the Social Security FICA taxes. The only requirement is that the business be able to demonstrate financial impact from the COVID-19 pandemic. To be clear, this is not a tax credit. Businesses that take advantage of this provision may delay making these tax payments on payroll tax deposits due between March 27, 2020 and December 31, 2020. One-half of the deferred taxes must be paid no later than December 31, 2021, with the balance due by the end of 2022.
Employer Credits for Paid Sick and Family Leave
The CARES Act also included a provision requiring certain employers to provide up to 80 hours of paid sick leave for employees who had to take time off work to quarantine or recover from COVID-19. Employers are entitled to claim a dollar-for-dollar credit at the employee’s regular wages, up to $511 per day (up to $5,110 total).
Employees who need time off work to care for a child whose school or daycare is closed because of COVID-19 or for another family member who is quarantined or self-quarantined because of COVID-19 are also entitled to paid time off under the CARES Act. Businesses can claim a credit of two-thirds the employee’s regular wages, up to $200 per day (up to $2,000 total) for up to 80 hours.
There is also an employer credit available for businesses whose employees had to take up to ten weeks of paid family leave to care for a child whose school or place of care was closed due to COVID-19. The Paid Family Leave Credit allows employers to claim two-thirds of the employee’s regular wages, up to $200 per day (up to $10,000 total).
In all three of these situations, employers may also claim credits for qualified health plan expenses paid and for the employer’s portion of Medicare taxes for these wages. However, act soon because these credits only apply to wages paid and sick time or sick leave taken between April 1, 2020 and December 31, 2020.
Employee Retention Credits
Many businesses are eligible to take advantage of tax relief in the form of employee retention credits. These credits, designed to incentivize businesses to keep workers on the payroll rather than furloughing them or downsizing, are available for companies who can demonstrate that gross receipts for a given quarter in 2020 were less than half of the gross receipts in a comparable quarter in 2019.
The credit is equal to 50% of up to $10,000 in wages (including certain benefits) per employee for wages paid between March 13, 2020 and December 31, 2020. More information about qualifying for and claiming this credit is available on the IRS website.
Plan Now for 2021
These programs represent just some of the available tax relief for small businesses. Other tax savings and financial relief opportunities include loan forgiveness programs, state-specific and federal tax strategies involving loss deductibility, NOL carrybacks, and more. These potential relief measures have varying timelines and deadlines. When in doubt, talk to your accounting professional or ask a lawyer for guidance.
The Rocket Lawyer COVID Legal Center also offers free resources designed to help business owners and individuals navigate these challenging times.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.