The novel COVID-19 epidemic has hit American businesses hard. Be it engineering, technology, healthcare, or manufacturing; all sectors have taken a significant hit. Amid piling expenses and tax obligations, more companies are reporting zero revenues as a result of government-ordered quarantine.
Congress recently cleared a $2 trillion economic stimulus package to help stabilize the American economy. Of this amount, $300 billion is meant to cushion SMEs against the devastating financial fallout of the COVID-19 epidemic. Businesses are not only being provided with loans, but they will also be allowed to defer paying a portion of their payroll taxes to the IRS.
Eligibility for the Economic Stimulus Package and Tax Relief
Not all businesses will qualify for tax relief to receive part of the $300 billion-plus package. The stimulus bill provides clear guidelines regarding companies that are eligible and how their loans and tax relief will be structured. Companies across all American territories and states qualify. Conditions for eligibility include:
- A company should have fewer than 500 employees
- Self-employed entrepreneurs, sole proprietors, and independent contractors are eligible
- Businesses in rural or under-served markets will be prioritized. This includes businesses that are run by economically and socially disadvantaged individuals, veterans, and women.
The Economic Stimulus Bill and Tax Relief
Arguably, the most significant tax relief that the economic stimulus bill provides is the payroll-tax deferment. If your company continues to employ workers during the coronavirus crisis, the stimulus bill gives it a tax credit. In this case, you’ll be able to defer your payroll taxes even as you continue paying employees. You can delay paying your payroll taxes for 2020. In 2021, you’ll pay 50% of your taxes, and the other 50% the following year.
Offering deferral on these payments will go a long way in easing the liquidity crunch that you might be experiencing. The tax relief will help you accumulate the cash needed to meet other financial obligations that you have and pay your share of taxes at a later date. However, your share of the Medicare payroll tax remains due as usual.
A Financial Shot in the Arm
The stimulus package will come in handy for both established and up and coming businesses since it gives them cash flexibility during this tough economic period. The stimulus bill doesn’t take away your tax burden altogether. Your taxes won’t be forgiven. Instead, you will only be afforded time to send a check to the IRS at a later date.
Companies that retain workers during the coronavirus crisis will also qualify for a payroll-tax credit. This includes “non-essential” businesses that have been ordered to close. Nonetheless, you must keep your workers employed during the crisis. You should also keep in mind that if you apply for the small business loans offered under the stimulus bill, you disqualify yourself from the payroll-tax credit.
Losses incurred in the past will also be considered as companies fulfill their tax obligations. For instance, losses incurred between 2018 and 2020 will get carried back for a maximum of five years. Therefore, a company can retroactively deduct the losses against profits made in the previous five years to claim immediate refunds of past taxes that got paid on those profits.
Taking Advantage of the Stimulus Bill with Incentax
Navigating the tax world can be challenging, especially during the ongoing coronavirus crisis. The benefits of working with tax professionals include:
- They can help you implement a flexible deferred payment program
- You won’t get caught on overlooked tax obligations
- You won’t face the IRS on your own
Although the coronavirus crisis has crippled all sectors of the American economy, you can still ride the tide by working with tax professionals to take advantage of the stimulus bill fully. With Incentax, you won’t have any issues with the IRS once the epidemic is over. Contact us today to learn more about our services.