Background
In light of the novel coronavirus (COVID-19) global pandemic, many small-to-medium sized businesses are struggling to manage revenue losses amid prolonged economic uncertainty.
To offset the pandemic’s financial impacts, Congress has passed several stimulus bills, including the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes provisions that can provide for increased cashflow as well as tax savings.
Businesses should quickly consider how these provisions could help their companies during this uncertain time to ensure they are maximizing available benefits.
SBA Paycheck Protection Program (“PPP”)
See Templeton’s PPP article for more information and call a Templeton partner with any questions.
Employee Retention Credit
The CARES Act provides eligible employers with a refundable credit against payroll tax liability.
How much does the credit cover?
The credit is equal to 50% of the first $10,000 in wages per employee (including value of health plan benefits).
Who is eligible for the credit?
Eligible employers must have carried on a trade or business during 2020 and satisfy one of two tests:
- Business operations are fully or partially suspended due to orders from a governmental entity limiting commerce, travel, or group meetings.
- A year-over-year (comparing calendar quarters) reduction in gross receipts of at least 50% – until gross receipts exceed 80% year-over-year.
For employers of more than 100 employees, only wages for employees who are not currently providing services for the employer due to COVID-19 causes are eligible for the credit. For employers of 100 or fewer employees, qualified wages include those for any, regardless of if the employee is providing services.
Employers receiving a loan under the SBA Paycheck Protection Program are not eligible for this credit.
Delay of Employer Payroll Taxes
The CARES Act postpones the due date for employers and self-employed individuals for payment of the employer share of taxes related to Social Security.
When are the deferred payments due?
The deferred amounts are payable over the next two years – half due December 31, 2021, and half due December 31, 2022.
Who is eligible for the deferral?
All businesses and self-employed individuals are eligible. However, employers who receive a loan under the SBA Paycheck Protection Program and whose indebtedness is forgiven are not eligible for the payroll tax deferral.
How We Can Help
Small to medium-sized businesses have many potential avenues—including the SBA loan program and payroll tax incentives—to help offset costs during this uncertain time. However, navigating the complex loan application process is a daunting task. The payroll tax provisions in the CARES Act interact with the SBA loan provisions, adding to the complexity.
In the immediate term, we can assist in analyzing which approach will be the most beneficial for your employees and your company. Those seeking SBA loans will need to move quickly to get their loans approved and funded. We can help you navigate the required paperwork and help organize the necessary information in an expedited manner—so you can boost your cashflow ASAP.
In addition to maximizing these available options, there are also beneficial income tax provisions to claim on income tax returns, including 2019 returns. We can assist companies in determining possible cash tax refunds through net operating loss (NOL) carrybacks and quick refunds of 2019 taxes already paid.
