These business tax credits are available for coronavirus-related financial relief
Two employer tax credits can help qualifying businesses save money
As state economies move ahead with reopening plans, some small businesses may want to explore tax credit options to aid their financial recovery.
While many businesses have applied for relief through the Paycheck Protection Program (PPP), which was designed to incentivize business owners to maintain staffing levels and pay throughout the pandemic, the program’s parameters may not have been optimal for all business owners.
There are two tax credit options that lawmakers have recently made available to small businesses, but one cannot be claimed in addition to a PPP loan.
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Here’s a look at the details:
Employee retention tax credit
Implemented as part of the CARES Act, the Employee Retention Tax Credit, like PPP, is designed to incentivize companies to retain employees despite difficult economic conditions that have resulted from the coronavirus outbreak.
It is a fully refundable tax credit equal to 50 percent of qualified wages – including certain health care costs – paid between March 12 and Jan. 1, 2021, up to $5,000 per worker.
Employers can get immediate access to the credit by reducing employment tax deposits. If the employer's employment tax deposits are not sufficient to cover the credit, the employer can get an advance payment from the IRS.
The credit is available only to individuals that have been affected by the coronavirus outbreak, which includes businesses that have either fully or partially suspended operations at some point or shown a significant decline in gross receipts.
Employers who receive aid through PPP are not eligible for this tax credit. The ERTC also cannot be combined with other tax credits.
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Sick and family leave credit
There are a number of options available to help employees and employers when workers either contract the virus themselves or have to care for a loved one.
For example, an employee unable to work because he or she is caring for a child or someone else with COVID-19 is entitled to paid sick leave for up to two weeks at two-thirds of his or her normal pay. If the federal minimum wage is higher, the employee can receive that or any applicable state or local minimum wage, up to a maximum of $200 per day and $2,000 in total.
An employee who must care for a child because school or daycare is closed, or the caretaker is unavailable, can claim those same benefits for up to 10 qualifying weeks, for a maximum of $200 daily and $10,000 total.
Further, employers are able to receive a refundable credit in the full amount of the sick and family leave, in addition to health plan expenses and their share of Medicare taxes on the leave period. The credit is to be applied against employment taxes on wages. Advanced payments can be requested.
Eligible employers can claim both credits, but not for the same wage payments.