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Summary of Tax Credits and Deferrals

Congress has made a few credits and incentives available that do not require repayment or application for loan forgiveness. These credits are broadly available to established businesses impacted by governmental stay-at-home directives amid the COVID-19 pandemic. Although the IRS has made it clear that employers may not "double-dip" by overlapping one credit with another for the same wages, employers can utilize each credit in tandem with the others for different employees and for different pay periods throughout the year. Note that there are additional restrictions in place if you receive a PPP or other governmental loan, but our focus below is on the relationship of these credits when no loans are in play.

Families First Coronavirus Relief Act

The Families First Coronavirus Relief Act provides for two separate credits that reimburse employers for paid employee leave based on specified circumstances.
  1. Emergency Paid Sick Leave (EPSL) reimburses employers who pay employees for up to 80 hours of missed work for six specified coronavirus-related reasons. The maximum credit for an employee with COVID-19 or who is seeking a diagnosis is $511 per day, or $5,110 in the aggregate. For employees taking care of someone diagnosed with COVID-19 or taking care of a child who is out of school or unable to attend childcare, the maximum is $200 per day or $2,000 in the aggregate. 
  2. An expansion of the Family Medical Leave Act (FMLA+) allows employers to be reimbursed for paying employees at a rate of two-thirds the employee's regular pay for an additional 10 weeks when an employee has to miss work due to taking care of a child under 18 whose school or daycare has closed because of COVID-19. The maximum reimbursement is up to $200 per day, with an aggregate maximum credit of $10,000.
These credits are available immediately by simply retaining a portion of the quarterly federal unemployment taxes that you would ordinarily deposit with the IRS. You can request an advance refund by using IRS Form 7200 if the eligible credit exceeds the tax deposit being paid.

The CARES Act

The CARES Act provides for an Employee Retention Payroll Tax Credit, which allows a refundable credit against the employer's Social Security tax obligation for 50% of the first $10,000 paid to each employee after March 13, 2020 through the rest of the year, or $5,000 per employee. The credit can be claimed immediately by simply withholding the amount of Social Security tax that would ordinarily have been paid in during the period. If the credit proves larger than the SS tax payment, the employer is eligible to file IRS Form 7200 to request a reimbursement for the excess amount.

Employer Social Security Tax Deferrals

Employers pay Social Security taxes at a rate of 6.2% on the first $137,700 of wages paid to employees for calendar year 2020. The CARES Act allows all employers to defer payment of employer Social Security taxes that are otherwise owed for wage payments made after March 27, 2020, through the end of the calendar year. Instead of depositing these taxes on a next-day or semi-weekly basis, the deposit due date for 50% of the taxes is deferred to December 31, 2021, with the remaining 50% deferred until December 31, 2022.

Please feel free to consult the chart on our website that also summarizes most of this information, along with specifics about a couple of the loan programs: https://www.ltroth.com/~ltrothco/files/CARES_Act_SmallBusiness_2020-04-02.pdf 

If you have any further questions about these topics, especially if you have received a PPP or other governmental loan, please feel free to reach out to us and we would be happy to evaluate your personal situation.

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