Opportunities to preserve some cash flow during the coronavirus health crisis are available through the CARES Act whether or not you received a loan through the Paycheck Protection Program.
Employee Retention Credits. One of those provisions under the CARES Act allows eligible employers to qualify for a refundable credit against, generally, the employer’s portion of the Social Security payroll tax for 50% of certain wages paid to employees during the COVID-19 crisis. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.
The credit is available to employers carrying on business during 2020, including non-profits, whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings.
The credit is also available to employers who have experienced a reduction in quarterly sales greater than 50%. This is measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.
IMPORTANT: The Employee Retention Credit is not available to employers receiving Small Business Interruption Loans through the Paycheck Protection Program under the CARES Act.
For employers with more than 100 employees in 2019, the eligible wages are wages of employees who are no longer providing services because of the business suspension or reduction in gross receipts.
For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if those employees have not been prevented from providing services.
The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Therefore, the credit is a maximum $5,000 per employee credit.
Wages do not include:
- Wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave;
- Wages taken into account for the employer income tax credit for paid family and medical leave; or
- Wages in a period in which an employer is allowed for an employee work opportunity credit.
An employer can elect to not have the credit apply on a quarter-by-quarter basis.
The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. You need to contact your payroll company if you have not received a PPP loan and want to pursue these credits.
Delayed payment of employer payroll taxes. If the Employee Retention Credit is not applicable for your business, you may want to consider delaying payment of employer payroll taxes.
Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments: one by December 31, 2021, the other by December 31, 2022.
Taxes eligible for deferral include the 6.2% employer portion of the Social Security payroll tax. If the employer applied for and received a PPP loan, the deferral option is no longer available once debt forgiveness is approved. For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).
Communication with your payroll company is crucial. Again, we advise that you contact your payroll company to let them know if you would like to defer these payroll tax payments. The payroll tax return filings must still be submitted on time. Once the PPP loan is forgiven, you will need to contact your payroll company to let them know you are no longer eligible to defer the payroll taxes.
Nicole Bishop is a Manager with the Business and Tax Advisory Group with Antares Group, Inc. She can be reached at firstname.lastname@example.org.
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.