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covid-19 tax credits

covid-19 small business tax credits

4 COVID-19 Tax Credits and Tax Relief Programs for Small Business Owners

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If you are like many business owners, then it is likely that the COVID-19 pandemic has impacted you financially in addition to fundamentally changing the way you do business. Fortunately, in an effort to make things easier on businesses that are being affected by this global pandemic, the federal government has passed several coronavirus relief packages that provide financial assistance to businesses and families across the country.

However, what some business owners may not know is that these stimulus packages have created new tax credits and tax relief programs meant to help small business owners during this difficult time. To help ensure that you are taking full advantage of these programs, here is a look at what businesses need to know about COVID-19 small business tax credits and relief programs. 

Employee Retention Tax Credit

In order to help businesses that were hurt financially by the coronavirus pandemic, The Employee Retention Tax Credit provides businesses with a refundable tax credit equal to 50% of wages paid to an eligible employee up to $10,00 per employee. This tax credit is available to all employers regardless of size or tax-exempt status. Qualifying employers can include those that are fully or partially suspended by government order due to COVID-19. Once an employer’s gross receipts go above 80% of a similar quarter in 2019, they no longer qualify for this tax credit.  

Payroll Tax Deferral Relief  

As part of the payroll tax deferral relief offered by the CARES Act, your business has the ability to defer the 6.2% employer portion of the Social Security tax owed on the first $137,700 of an employee’s 2020 wages paid during the deferral period (March 27, 2020 to December 31, 2020). You will then have to repay these deferred payroll taxes in two installments on December 31, 2021 and December 31, 2022. This deferral is available to all employers regardless of the extent to which their business has been affected by COVID-19. It is important to note that this deferral program is unavailable to small businesses, sole proprietors, or self-employed individuals who receive forgiveness of SBA loans issued under the Payment Protection Program that was offered by the CARES Act. 

Retroactive Tax Relief

The CARES Act also provided certain tax relief measures that were retroactive, which can potentially make it beneficial for you to file an amended tax return for past years in order to recover taxes paid. For instance, one provision of the CARES Act significantly liberalizes rules for deducting net operating losses by allowing net operating losses that arise from 2018 to 2020 to be carried back five years. A net operating loss that arises this year can then be carried back to 2015, allowing you to claim refunds for taxes paid in carry-back years. Since tax rates were higher before 2018, net operating losses carried back to those years can result in significant tax refunds, helping provide you with crucial capital during this difficult time.  

Sick/Medical Leave Tax Credit

As part of the Families First Coronavirus Response Act (FFCRA) signed into law in March, small businesses with fewer than 500 employees must provide limited paid leave benefits to employees affected by the coronavirus emergency. However, these small businesses have access to new tax credits to help pay for these benefits. The act requires that affected employers pay emergency sick leave of $511 per day for up to 10 days to employees in coronavirus quarantine or seeking a coronavirus diagnosis. An employee can also receive up to $200 per day for up to 10 days to care for a quarantined family member or a child whose school or child-care has been closed due to the pandemic. These required benefits are offset by a new tax credit that allows a small employer to collect 100% of qualified sick-leave and family-leave payments made by the employer as required by the law between April 1, 2020, and December 31, 2020. 

Taking advantage of all available tax credits and tax relief programs can be crucial in helping your business to survive the COVID-19 pandemic. You should consider talking to an advisor who can help you to ensure that you are not missing any key tax credits that could help your business during this difficult time. Contact us to learn about how Incentax’s process can help you find tax credits that could help your business through this ongoing crisis.  

covid19 tax credits

What You Need to Know About Covid-19 and Business Tax Credits

By | Tax Credits | No Comments

The COVID-19 crisis has led to government-imposed lockdowns throughout the world. It has significantly slowed down economic growth and led to massive job cuts. Despite the revenue losses experienced across all industries, companies are still required to fulfill their tax obligations.

The federal government has enacted The Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act to protect individual taxpayers and businesses from the devastating financial effects of the crisis.

State governments haven’t been left behind. In California, for instance, the state government has pledged to provide assistance to small businesses during the epidemic.

The advantages of these federal and state coronavirus-related tax relief policies include:

  • Additional time for handling tax-related matters
  • Quicker tax refunds
  • Temporary changes in tax audit policies to ensure quicker tax determination

Here’s an overview of the business tax credits that have been implemented to support companies amid the COVID-19 threat.

Employee Retention Credit

The CARES Act introduced the employee retention credit (ERC) that allows eligible employers to claim a tax credit against employment taxes for every calendar quarter for amounts equal to 50% of qualified wages per worker. This applies to a maximum of $10,000 in wages per employee per year. Generally, the ERC is limited to the employment taxes that are imposed on the wages. Any excess is regarded as a refundable overpayment.

Paid Sick Leave Refundable Credit

The Emergency Paid Sick Leave Act (EPSLA) requires eligible businesses to provide their workers with paid sick leave in case they are unable to work. Employees who are afflicted by the coronavirus are entitled to a two-week (80-hour) paid sick leave at their regular salary.

Eligible employers are entitled to a refundable tax credit that equals the paid sick leave. The tax credit also includes the employers’ share of Medicare tax that is imposed on those wages.

Paid Family Leave Tax Credit

Employees who are unable to work because they need to take care of a child whose place of care or school is closed are entitled to paid medical and family leave equivalent to two-thirds of their regular pay.

Eligible employers are entitled to a refundable tax credit that is equal to the paid medical or family leave. Besides, the tax credit includes the employers’ share of Medicare tax that is imposed on those wages as well as the cost of maintaining health insurance covers for the employees during the leave period. An eligible employer is defined as one who:

  • Was undertaking business during the 2020 calendar year
  • Concerning any other calendar quarter, the business activity got partially suspended due to government orders such as mandatory COVID-19 lockdowns that caused significant loss of income

Delay in The Payment of Payroll Taxes

The CARES Act allows self-employed individuals and employers to delay depositing their portion of social security tax and the 50% tax levied on self-employment income. However, 50% of the delayed payment ought to get deposited to the IRS next year, and the other 50% by the end of 2021. Businesses that are taking loans provided by the Small Business Act don’t qualify for this benefit.

Acceleration of AMT Tax Credits

The Tax Cuts and Jobs Act (TCJA) revoked the corporate alternative minimum tax (AMT). Nonetheless, it still allows for refundable AMT credits. This applies for taxable years 2018 to 2021. Under the CARES Act, businesses can accelerate the recovery of the AMT credits. This includes requesting a tentative reimbursement of such amounts before or on 31st December 2020.

As you can see, there are many business tax credits that can help keep your company afloat during the current COVID-19 pandemic. For more details about the refundable tax credits that you qualify for and how to make successful claims, contact the team at Incetax.