Employer credits available to help businesses overcome COVID-19
Several credits were created specifically to help small business owners overcome the financial crisis caused by the pandemic.
The Employee Retention Credit was created to encourage businesses to keep employees employed during difficult financial times. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
This credit is available to all employers regardless of size, including tax-exempt organizations. However, there are two exceptions. State and local governments and their instrumentalities and small businesses who take small business loans are not eligible for this credit.
Employers must qualify with one of two categories
The employer’s business is fully or partially suspended by a 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.
Employers will need to calculate their gross receipts for each calendar quarter to determine if the quarter qualifies for the credit.
The Paid Sick Leave Credit was created to allow businesses to get credit for an employee who is unable to work (including telework) because of Coronavirus quarantine, self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis.
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 employer can also receive the 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 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 receive the credit by reducing the amount of their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers are also qualified to immediately receive a credit in 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 April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
If the employer’s employment tax deposits are not enough to cover the credit, the employer may receive an advance payment from the IRS by using Form 7200.
David Zubler is a tax accountant and Enrolled Agent in East Tennessee, providing tax strategies and representing clients before the IRS and has over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can be reached at (865) 363-3019 or contacted by email at firstname.lastname@example.org