The coronavirus (COVID-19) shutdown has left organizations across the country in serious financial trouble. To help them get through this stretch, the government passed multiple forms of coronavirus tax relief for businesses and tax-exempt entities. This article outlines some of the most important programs available along with rules for qualifying.
Delay of Income Taxes
The IRS delayed the filing deadline for 2019 tax returns from April 15 until July 15, 2020. They also delayed the deadline for income taxes until July 15. This applies to both unpaid 2019 taxes and the first two installments of estimated taxes for 2020 (Q1 and Q2).
The income tax extension is available for any business as well as their owners and employees, so as long as business owners pay their taxes by the extended July 15 deadline, they will not owe interest or penalties. This extension gives business owners a few months of financial breathing room as they figure out their other options for financing during this time.
Delay of Payroll Taxes
The federal government also created an extension for payroll taxes. Employers can delay sending in the employer portion of Social Security taxes, which are the 6.2% of wages that they pay on behalf of their employees. However, they still need to pay the employer share for Medicare as well as the payroll taxes that were withheld from an employee’s wages.
Just delaying the Social Security taxes can free up significant cash flow, and the deadline for paying these taxes is even later than for income taxes. Organizations need to submit 50% of unpaid payroll taxes by December 31, 2021 and the remaining 50% by December 31, 2022, according to the IRS.
This extension helps small businesses and nonprofits because they both cover payroll taxes for their employees. There is one exception, though: Organizations that took out a forgivable loan through the Paycheck Protection Program cannot also use the payroll tax deferral.
Employee Retention Credit
The government created another small business tax credit to help employers keep their staff on payroll: the Employee Retention Credit. The IRS states that the Employee Retention Credit covers 50% percent of employee wages up to $5,000, so half of an employee’s wages up to $10,000 are covered by a tax credit.
Employers can claim this credit to reduce income taxes and payroll taxes. If an organization still has unused credits, they are refundable, meaning the organization can apply for cash from the IRS. This makes the Employee Retention Credit useful for both businesses and tax-exempt entities.
To qualify, an employer must have had their operations completely or partly suspended due to COVID-19 shutdown orders, or the employer must show that their quarterly revenue has fallen at least 50% versus the same quarter last year. Again, organizations that took out a PPP loan cannot use this coronavirus business help.
Although this credit is available for all organizations, it’s easier for small businesses to qualify. Employers with 100 or fewer employees can claim this credit for all employee wages. Employers with over 100 employees only get a credit for paying employees who aren’t able to work during the COVID-19 crisis.
Paid Sick and Family Leave Credits
To help employees deal with the coronavirus, the government also expanded paid sick leave and family leave programs. Employees who take time off for illness or to take care of a family member still continue to receive part of their wages.
The government realized these programs would be a burden for organizations already struggling with cash flow issues, so it created a tax credit to cover the costs from the expanded Paid Sick Leave and Family Leave benefit. In other words, the government pays for these benefits through coronavirus tax relief for businesses. These credits are only available for organizations with 500 or fewer employees, according to the IRS.
These are just some of the major forms of coronavirus business help, but there are many others. Consider speaking with your tax adviser for more information on what’s available for your organization, especially as the government continues to pass new rules by the day.