Small Business Relief during COVID-19 - the PPP is not your only option
With all the news regarding the PPP, it is important to know all your options. If you have already applied and received a Payroll Protection Program loan, you can stop reading -- No double dipping allowed.
This article is intended to help small businesses ... less than 50 employees ... businesses that don't have folks in the legal and accounting departments deciphering all this information for them. I am a small business accountant trying to break it down for small business employers. I will not attempt to say which option is right for your situation. I will provide direct links to where the real answers are, and the most important step ... call your tax professional and your payroll provider for clarification on how these relief options apply to your business.
Many small business owners are relying on getting the PPP (Payroll Protection Program) loan to stay afloat during these uncertain times. While the PPP is a great program, this possibly forgivable loan is not our only option -- if you have employees.
There are new payroll tax credits that are not making the news headlines, and these can be a great alternative for many businesses ... for some, they can provide greater relief. While the credits take a little longer to get funded (6-8 weeks to get the check once the forms are processed), these are refundable tax credits instead of taking out a loan and asking for forgiveness later. Refundable tax credit means that the IRS cuts your business a check -- not the SBA. There are three options available, and they each have very specific criteria, but don't let that discourage you. It's worth the research!
Employee Retention Credit: For employers whose operations have been partially or fully suspended due to government orders or businesses that have seen a significant decline in gross receipts due to COVID-19, qualified wages of up to $10,000 per employee may qualify for a 50% tax credit. This means that if you qualify, you may take a tax credit of up to $5,000 per employee on wages paid between March 13, 2020, and December 31, 2020.
Paid Sick Leave Credit: For employers who are still operating but an employee is unable to work due to coronavirus quarantine, employers paying sick leave are eligible to receive a tax credit for the full amount of wages paid up to $511 per employee per day but no more than $5,110 total per employee for up to two weeks (80 hours) for wages paid April 1, 2020, through December 31, 2020. In addition to the credit, the employer is also eligible for a reduction in employer payroll taxes on qualified wages.
Paid Family Leave Credit: For employers who are still operating but an employee is unable to work because they are caring for someone with coronavirus or if their child's daycare or school is closed, employers paying family leave are entitled to receive a tax credit of up to two-thirds of the employee's regular pay, up to $200 per employee per day, but no more than $10,000 total per employee for up to ten weeks, for qualified wages paid April 1, 2020, through December 31, 2020.
This is just a summary of the credits. Please do your own homework to determine your eligibility. There are very specific qualifications on qualified businesses, qualified wages, and qualified leave time. If you are confused about the terminology, don't let that get you down; your tax consultant or payroll provider can walk you through it. Many businesses may qualify for these credits, and the time to claim them is fast approaching. There is a new form the IRS created (7200) to get an advance on the credit, and the credit is reconciled on quarterly 941s starting with the second quarter due July 31, 2020. The time to act is now.
Thanks for sticking with my terrible attempt to write an interesting article about tax credits ... seriously, what was I thinking ... I'm an accountant - not a writer, but tax credits are my jam.
Reliable links from trusted sources:
Publication 5419, New Employer Tax Credits (PDF)
New Employee Retention Credit helps employers keep employees on payroll [IRS]
New credits fund employers for Coronavirus-related paid leave [IRS]
FAQs: Employee Retention Credit under the CARES Act [IRS]
Coronavirus Paid Leave Programs Employer Guide [US Chamber of Commerce]
Families First Coronavirus Response Act: FAQ [US Department of Labor]
COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs [IRS]