The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides much needed economic help to distressed businesses to prevent further economic harm. The law offers financial assistance through the Small Business Administration and tax deferrals to maintain cashflow. Additional refundable tax credits to offset required paid sick and family leave will protect workers and businesses hurt by COVID-19.
Protecting workers paychecks through Small Business Administration backed loans:
The CARES Act creates a “paycheck protection program” for small businesses (less than 500 employees). This program provides loans to small employers with the promise that any part of the loan used to pay for payroll, interest on business mortgages, rent, or utility bills for up to 8 weeks will be forgiven. More information is available on HARDI’s SBA Loan page.
Employer payroll taxes deferred for 2020:
For employers not using PPP loans, the CARES Act deferred all payments of the employer portion of Social Security taxes (6.2%) for 2020. Any portion that is owed by an employer will be due over two years, half in 2021 and half in 2022. Due to the paid sick and family leave portions of the Families First Coronavirus Response Act (FFCRA), many employers will have reduced payroll taxes. FFCRA allows small employers (less than 500 employees) to deduct the value of emergency paid sick and family leave.
- Employers will be reimbursed via refundable employer payroll tax credits for the cost of wages and employer contribution for health insurance during the either sick or family leave.
- Employees can receive up to $511 per day for 10 days if the employee is sick with COVID-19 and $200 per day for 10 days if a family member is sick with COVID-19.
- Additionally, employees can receive up to 10 weeks of paid family leave to recover from COVID-19 or up to $200 per day to care for a family member sick with COVID-19 or a child unable to attend school because of closures.
- Employers must offer this paid sick and family leave to employees
With these refundable deductions, some employers may have little to no employer payroll tax owed. The IRS will release further guidance on how employers should track unpaid employer payroll taxes and how to get advances on the refundable credits.
Tax credits to maintain payrolls during economic hardship:
Companies that face closure orders or suffer economic hardship due to COVID-19 and continue to pay employees can receive a 50% tax credit for wages earned up to $10,000. This tax credit is available to businesses that see a 50% drop in gross receipts over the same quarter the previous year or face full or partial shutdown orders. This tax credit is not available to businesses using PPP loans.
Allows businesses to write-off losses on previous tax years:
Any business that lost money in 2018, 2019, or 2020 can write off those losses on previous tax returns up to 5 years ago and receive tax refunds from those previous taxes paid.
Allows businesses to write-off improvement made to pre-existing buildings:
The legislation fixed a technical error from the Tax Cuts and Jobs Act. Under the new law any improvements, including HVAC systems, commercial refrigeration and other improvements, made to an existing building can be immediately expensed on the customer’s taxes. Learn more about HVAC expensing in this infographic.