Due to Covid-19, many businesses in our communities are facing extremely difficult situations. Whether you’re seeking support for paid leave or are facing a cash flow issue, there are many credits and tax savings opportunities that can benefit your business.
Included in this article is information on many of the newly released tax credits offered in response to the Covid-19 pandemic, as well as supporting links directly to the IRS’s website which further details each credit, how to qualify, and how to apply/receive.
Families First Coronavirus Response Act
If you own a small business with fewer than 500 employees and are subject to the Families First Coronavirus Response Act (FFCRA), you are eligible for several refundable tax credits, which offset the costs of paying for qualified sick leave wages and qualified family leave wages. In order to prevent a double benefit however, if these credits are claimed, then the wages offset by the credit cannot be claimed for PPP loan forgiveness purposes. In other words, you cannot receive loan forgiveness for wages that you also receive a tax credit for. The IRS provides a detailed overview concerning these tax credits here.
The IRS also provides FAQ’s here, which may answer some of your questions.
For businesses with more than 500 employees, which are not subject to (FFCRA), you may be eligible for the 45S employer tax credit, which covers a percentage of wages paid for family and medical leave. This credit is similar to the first, but for larger businesses. FAQ’s relating to this credit can be found here.
Employee Retention Credit
Businesses which seek cash flow and tax savings opportunities, and which are partially or fully shut down due to Covid-19, but did not receive a PPP loan, can benefit from the Employee Retention Credit, which incentivizes employers to keep their employees on payroll. This credit is a refundable tax credit, which can offset employment taxes for 50% of qualified wages to employees after March 12, 2020 and until January 1, 2021.
Eligible employers can receive immediate access by reducing employment tax deposits they ordinarily make. The credit is calculated on a per employee basis, with a $10,000 max on each employee’s wages being counted to determine the credit. This means that you can receive up to $5,000 in refundable credits for each employee you have, which can effectively decrease the costs of continuing to pay employees through this pandemic. More information on the Employee Retention Credit can be found here.
FAQ’s relating to this credit can be found here.
Businesses with operations still intact, but which are looking for ways to save can still benefit from several available credits and strategies. These include but are not limited to: AMT credits, carryback net operating losses (NOL’s), suspension of excess business loss rules, 50% increase in business interest expense limitation, bonus depreciation for qualified improvement property, and deferral of employer payroll taxes. Note that if an employer obtains forgiveness on a PPP loan, they must stop deferring their employer portion payroll taxes.
If you own a business that has been affected, please contact us so we can help navigate you through these tough times. Our communities are built and rely on businesses like yours, so our team will do everything we can to ensure you receive the help you need!
About the Author
Brian George is a Tax Associate in our Winchester office. He joined YHB in 2019 after graduating from West Virginia University with his Master’s of Accountancy. During his time at YHB, Brian has provided a range of tax services to individuals and closely-held businesses.