By Kayla Matthews
To keep businesses afloat during the coronavirus crisis, the federal government launched several new tax credits for employers of all sizes. These three coronavirus tax credits are designed to help you manage the financial burden of covering sick and family leave for your employees, as well as any government-mandated closures you may have complied with.
Employee Retention Credit
The employee retention credit is “designed to encourage businesses to keep employees on their payroll.” The tax credit, which is refundable, is 50 percent of up to $10,000 per employee in wages paid by your business. You can claim it so long as you’ve been impacted by COVID-19 and aren’t a small business that’s taken a small business loan.
For the purpose of the credit, impacted means one of two things:
- During 2020, your business has been fully or partially suspended by the government due to COVID-19 for the quarter, or
- During 2020, your gross receipts were below 50 percent of the comparable quarter in 2019.
If your gross receipts rise above 80 percent for a comparable quarter in 2019, you’ll no longer be considered impacted by COVID.
The Employee Retention Credit is not to be confused for the Paycheck Protection Program, another federal program designed to encourage businesses to keep employees on payroll during the COVID-19 crisis. You cannot receive both the Employee Retention Credit and a PPP loan.
The Paid Sick Leave and Family Leave Credit
These two credits are designed to compensate employers for employees who are unable to work due to COVID-19.
As an employer, you are obliged to provide employees who are unable to work (or telework) due to COVID-19 with paid sick leave for up to two weeks — whether they are sick, have been advised to self-quarantine or are caring for someone who has been advised to self-quarantine. You are also entitled to a fully refundable tax credit that’s equal to the cost of that paid sick leave.
Employees are also entitled to paid family leave if they are unable to work because they are caring for a child due to the closure of schools and childcare providers. You are also entitled to a fully refundable tax credit for the cost of this family leave.
In both cases, the paid leave will be equal to two-thirds either their regular hourly wage or minimum wage, whichever is higher. These leave payments won’t affect the employee’s standard rate of basic pay. This means that, for example, if an employee is paying for family life insurance, and the value of that insurance is based on rate of basic pay, taking sick or family leave shouldn’t affect the coverage provided.
How Do I Receive These Credits?
You can be immediately reimbursed for the credits by reducing the required deposits of payroll taxes by the value of the credit. To do so, you’ll need to calculate the size of the credit you’ll receive for the preceding quarter and apply it to your business’s Form 941, Employer’s Quarterly Federal Tax Return.
If your tax deposits aren’t enough to cover the credit, you can request an advance payment from the IRS using Form 7200, Advance Payment of Employer Credits Due to COVID-19. You can submit Form 7200 any month during the month following the quarter for which your claim is being made.
The IRS hasn’t yet put forward timetable for when these advances will be sent out, however. If your business needs funds urgently, it may a be a good idea to look to other sources of funding.
About the Author: Kayla Matthews writes about communication and workplace productivity on her blog, Productivity Theory. Her work has also appeared on Talent Culture, MakeUseOf, The Muse and Fast Company.