COVID-Related Payroll Tax Credits and Relief – You May be Eligible

Congress has provided multiple levels of assistance to small businesses and employees through the CARES Act and the Families First Act.  Relief has included the PPP loan, which has helped many practice owners, in addition to paid leave for employees.  Practice owners may also be eligible for additional relief in the form of payroll tax credits and deferring the payment of Social Security taxes.  Since there are restrictions to the credits and deferral, please review the summary below to determine what may be the best fit for your practice.

  1. CARES Act Employee Retention Credit:

The Employee Retention Credit provides a payroll tax credit to employers whose operations were suspended or significantly reduced due to COVID-19.  It is equal to $5,000 per employee (50% of qualified wages paid per employee up to $10,000).

To qualify for this credit, you must show that you experienced either:

  • Full or partial suspension of operations during the calendar quarter due to governmental orders, or
  • A significant decline in gross receipts (less than 50% of those collected for the same calendar quarter in 2019).

Wages paid between March 12, 2020, and December 31, 2020, may qualify for the credit, up to $10,000.  This credit will be claimed each quarter when filing Form 941, Employer’s Quarterly Federal Tax Return, and we recommend contacting your payroll provider should you wish to utilize this credit.

***Employers that received a small business interruption loan under the Paycheck Protection Program (PPP) are not eligible for this credit.

***Employers that receive a tax credit based on the Families First Act (see below) may not consider the same wages for each credit.

  1. Families First Act Payroll Tax Credit:

Eligible employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS.

Please reference our 6/17/20 blog regarding the qualifications for sick or child-care leave under the Families First Coronavirus Response Act 

Please note, business closures or shutdowns due to COVID-19 are not covered reasons for paid sick leave.

This credit will be also be claimed each quarter when filing Form 941, Employer’s Quarterly Federal Tax Return, and we recommend contacting your payroll provider should you wish to utilize this credit.

***If you received a small business interruption loan under the Paycheck Protection Program (PPP), you are eligible for this credit as long as you did not use PPP proceeds to pay for sick or child-care leave.

***Employers may not count wages paid for both this credit and the employee retention credit (see above)

  1. Deferral of Payment of Employer Portion of 2020 Social Security Tax:

The CARES Act permits any employer to defer payment of the employer portion of Social Security taxes regardless of whether the employer is affected by COVID-19.

The deferred employer Social Security taxes must be paid in two installments by the following dates:

  • 50% due by December 31, 2021.
  • Remaining 50% due by December 31, 2022.

Please remember that this is a deferral of payment.  You still are responsible for paying the taxes.  Therefore, unless the practice is having significant cash flow issues, we recommend that you do not defer paying Social Security taxes.

***No interest or penalties will be assessed for deferring Social Security tax payments.  If you need to defer, contact your payroll provider.

***Employers that have received an SBA PPP loan may defer payments.

What to do Next?

  • If you did not take out a PPP loan, and if you meet the criteria for the CARES Act Employee Retention Credit, we recommend that you contact your payroll company to claim the payroll tax credit.
  • If you have employees who qualified for and used paid sick or child-care leave, we recommend that you contact your payroll company to use this credit. Please keep in mind the limits of using both the CARES Act and Families First Act credits.
  • As mentioned above, unless the practice is having significant cash flow issues, we recommend that you do not defer paying Social Security taxes.

Please let us know what questions you have about the tax credits.

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