[US] Pandemic Tax Credits Small Business Owners Should Know About

22 JUN 2020

Lockdown has been hard on small business owners. Whether forced to shut down or an essential business remaining open despite the risk, these are unsettled times economically and the adverse financial effects are affecting everyone. But there is help available and some of it comes in the form of tax credits, USA Today breaks down the credits on offer and who may be eligible for them.

The IRS has highlighted new credits available to employers including the employee retention credit and credits for family leave and paid sick leave.

Taking advantage of these credits could potentially save companies money and enable them to better protect employees.  

The employee retention credit

The employee retention credit is a refundable tax credit available to employers whose gross receipts have declined, in comparison with last year, or those who had to fully or partly shut down under government orders. The credit is worth up to 50 per cent of up to $10,000 in qualified wages (including health plan expenses) paid to employees between March 13 and December 31, 2020. 

The $10,000 wage cap means the maximum value of the credit is $5,000 per employee. The credit is applied against the employer's share of Social Security and railroad retirement benefit taxes. However, because it is fully refundable, employers are entitled to a refund even if the amount of the credit exceeds the taxes due. Eligible employers can reduce the amount of federal taxes they are depositing if they expect to receive this credit and/or can request an advance on it, in the form of a cheque.

The new credits for paid sick leave and family leave

Coronavirus relief provided new options for paid sick leave for people who contract COVID-19, who must care for someone with the virus, or who have to care for children because their daycare or schools have closed. Employers who pay the required sick leave or family leave are entitled to a credit for the full amount paid out. 

Paid leave is available to employees under the following circumstances:

  • Those who cannot work because they are under quarantine or because they are experiencing COVID-19 symptoms and awaiting a diagnosis are entitled to up to 10 days of paid sick leave at the higher of their standard pay or the federal or state minimum wage. The maximum payment is $511 per day and $5,110 for the 10 days. 
  • Employees who cannot work because they are caring for someone with COVID-19 or because child care became unavailable for a reason related to COVID-19 are entitled to up to two weeks of paid leave at two-thirds of their pay or federal or state minimum wages, whichever is higher. The maximum payout is $200 daily and $2,000 in total. 
  • Employees who cannot work because they must care for a child whose school or daycare facility is closed for reasons relating to COVID-19 are also eligible for paid family and medical leave of up to 10 weeks. These employees will be paid at two-thirds of their regular pay, up to a maximum of $200 daily and $10,000 total. 

Employers can claim a credit for the full amount they pay for this leave, in addition to as any health plan expenses and their share of Medicare taxes. They may apply the credit against their employment tax obligations and reduce their payments to the IRS in anticipation of the credit and/or request an advance on the credit, in the form of a cheque. 

It is a good idea to take advantage of the tax credits available. The assistance the government provides could make a significant difference in these challenging times, keep companies operating and retaining key employees on the payroll.

Source: USA Today