Updated June 23, 2020
In this part of our series on how the CARES Act impacts you, we provide information on the tax provisions for businesses. For a complete overview of the act, be sure to check out the full series using the COVID-19 resource tab on our website.
Among CARES Act tax provisions, the two most urgent for business owners to be aware of now are the employee retention credit and the delay of payment of employer payroll taxes.
Employee Retention Credit
The government orders requiring businesses to partially or fully suspend operations in an attempt to slow the spread of the coronavirus forced many owners to make tough financial decisions. The CARES Act helps by providing a refundable credit against payroll taxes for 50% of wages paid from March 13, 2020, to December 31, 2020, up to $10,000 per employee for eligible employers.
If your business operations were interrupted or your company experienced a reduction in quarterly revenue of more than 50% due to the COVID-19 crisis, you may be eligible for this credit. This includes nonprofit organizations, but the credit is not available to businesses who receive Small Business Interruption Loans under the Paycheck Protection Program.
The number of individuals you employ impacts how you are able to claim the credit. The credit applies to all wages if the business had (on average) 100 or fewer employees in 2019. If the business had more than 100, the credit only applies to wages paid to employees who are not providing services due to the crisis. Businesses with common ownership will be aggregated to determine if they exceed the 100 employee threshold.
It is also important to note the credit does not apply to wages of employees eligible for the Work Opportunity Tax Credit or to paid sick or family leave under the Families First Coronavirus Response Act. However, payments made for employee health plans do count as wages for purposes of the credit.
The credit is taken quarterly, and you will receive a refund if the amount of the credit exceeds the payroll taxes due.
Deferred Payment of All Employer Payroll Taxes
Another important provision in the CARES Act allows employers to defer payment of employer-share of Social Security and Medicare (payroll) taxes due from March 27, 2020, to December 31, 2020. Half of the tax deferred will be due December 31, 2021, while the other half will not be due until December 31, 2022. This does not, however, apply to the amounts withheld from employees. This benefit also applies to self-employed individuals, allowing them to defer payment of half of their self-employment tax on the same schedule.
If you have further questions on how the CARES Act impacts your business, our team is here to assist you. You can count on us.
Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.