The Payroll Protection Program is our recommended course of action for most business clients affected by the Coronavirus Pandemic. The demand for this program has overwhelmed financial institutions and the funding disappears very rapidly. If you have been unsuccessful in getting a Payroll Protection Program loan, read on.
Employee Retention Credit. This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
Eligible employers. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. When the employer's gross receipts exceed 80% of the comparable quarter in 2019, the employer no longer qualifies for the credit at the end of that quarter.
The credit is not available to employers receiving Small Business Interruption Loans (payroll protection loans) or to self-employed individuals with no employees.
Wages paid to which employees? For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers' closure or reduced gross receipts are eligible for the credit.
No credit is available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit with respect to the employee.
Wages. The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.
Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act. Wages taken into account for this credit are not taken into account for the employer credit for paid family and medical leave.
Refunds and Advance Payments. IRS can advance payments to eligible employers. If the amount of the credit for any calendar quarter exceeds the applicable payroll taxes, the employer can claim a refund of the excess on its federal employment tax return. In anticipation of receiving the credits, employers can also fund qualified wages by accessing federal employment taxes, including withheld taxes, that are required to be deposited with the IRS (or by requesting an advance of the credit from the IRS on Form 7200 (Advance Payment of Employer Credits Due to COVID-19).
Waiver of penalties. IRS can waive applicable penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit.
Effective date. The credit applies to wages paid after Mar. 12, 2020 and before Jan. 1, 2021. According to the IRS, if an employer paid any qualified wages between 3/13/20 and 3/31/20, it will include 50% of those wages, together with 50% of any qualified wages paid during the second quarter of 2020, as a credit on its second quarter Form 941.
Also, self-employed individuals may be able to qualify for paid sick leave or paid family leave as provided in the Families First Coronavirus Act. These benefits are provided as a reduction in income taxes on 2020 income tax returns.
The qualified family leave* equivalent amount is an amount equal to the number of days (not to exceed 50) during the taxable year that the self-employed individual cannot perform services for which that individual would have been entitled to family leave (if an employee) multiplied by the lesser of $200, or 67% of their average daily self-employment income of the individual for the taxable year.
The qualified sick leave** equivalent amount is an amount equal to the number of days during the taxable year that the self-employed individual cannot perform services for which that individual would have been entitled to sick leave (if an employee), multiplied by the lesser of two amounts:
–100% of the average daily self-employment income of the individual for the taxable year
As before, you cannot take advantage of these credits if you received benefits from the Payroll Protection Program.
*Employees caring for an individual described in category (1), (2), or (3) below, caring for a son or daughter whose school is closed or childcare provider is unavailable, or experiencing a substantially similar condition specified by the government
**Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis.
Economic Impact Payment – we have had many clients ask questions regarding this payment from the federal government. The answers to most of your questions and access to check on the status of your payment, to enter direct deposit information, or to enter information if you are not required to file a return is available on the IRS website at www.irs.gov/coronavirus/get-my-payment, or visit our website for links to Economic Impact Payment and Payroll Protection Loan information.