In the past couple of weeks, we have seen an influx of tax updates that are aimed to mitigate the economic impacts that COVID-19 has had on small businesses and individuals. We want to summarize each of the tax updates for small business owners so they can be informed of all the tax credits and resources that they will need to get through this crisis.
TL;DR – What it means for businesses
- Tax Deadline Extension: more time to file for returns, increase cash flow by delaying 2019 tax payment and Q1 estimate tax for 2020. Lower estimate payments if business is going to be impacted. File 2019 tax return if there’s a refund due.
- Payroll Responsibility: payroll obligations to pay employees that are impacted by COVID-19 and exceptions for small businesses with less than 50 employees.
- Payroll Credit Related to Sick Leave and Expanded FMLA: receive reimbursement for COVID-19 related payroll paid to employees.
- CARES ACT: Payroll Holiday: defer payroll tax payment to increase cash flow.
- CARES ACT: Payroll Retention Credit: for businesses that are impacted by COVID-19 but continue to pay their employees, you can get refundable credit up to $10K per employee paid.
- CARES ACT: NOL Carryback: if you have net business losses in 2018 to 2020 and your business has business profits in the past years, you can file amended returns to use the NOL to offset past business profits and get a refund.
Tax Deadline Extension
- Federal filing and payment deadlines have been postponed to July 15, no interest or penalties will be assessed between now and July 15. No action needs to be taken to get this extension
- Federal Q1 payment has been extended to July 15 as well, but Q2 payment deadline still remains as June 15.
- Individuals and business owners have till July 15 (if no tax extension has been filed) to contribute to their retirement plan.
- Some states have also postponed their filing and tax payment deadlines to be consistent with the new federal deadline of July 15.
- Some states postpone the sales tax filing for certain small businesses (eg. MA)
- Each state is different, for more states update please follow this link here: click here
What it means for businesses: more time to file for returns, increase cash flow by delaying 2019 tax payment and Q1 estimate tax for 2020. Lower estimate payments if business is going to be impacted. File 2019 tax return if there’s a refund due.
- Employers with more than 500 employees are required to offer sick leave pay for those employees that are sick or need to be quarantined due to COVID-19.
- no higher than $511 per day ($5,110 total).
- FMLA also expands to cover for those employees that are unable to work due to the need to take care of their minor children because the children’s daycares and schools are closed during the COVID-19 crisis.
- the first 10 days of leave may be unpaid
- After 10 days, covered employers must provide paid leave at two-thirds of an employee’s usual rate. The pay requirement is limited, however, to $200 per day and $10,000 total per employee.
- The expanded FMLA also requires employers to offer pay to employees who are caring for an individual subject to a COVID-19-related quarantine or isolation order.
- required to be paid at two-thirds of the regular rate, capped at $200 per day ($2,000 total).
- Exceptions: Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue.
What it means for businesses: payroll obligations to pay employees that are impacted by COVID-19 and exceptions for small businesses with less than 50 employees.
Payroll Credit Related to Sick Leave and Expanded FMLA
- Employers that paid sick leave and FMLA due to COVID-19 will get payroll tax credit equal to the amounts paid to employees due to COVID-19 related sick leave and expanded family leave due to taking care of minor children.
- The 100% reimbursement for the COVID-19 related paid leaves include
- Salaries and wages
- Health insurance costs
- Employers can get the credits through
- Retaining payroll taxes rather than remitting them to the IRS
- If the amounts paid exceeds the payroll taxes required to remit to the IRS, file Form 7200 to get the remaining payments: click here
- Effective day is April 1, 2020 through December 31, 2020
What it means for businesses: get reimbursement for COVID-19 related payroll paid to employees.
CARES ACT: Payroll Holiday
- Postponing employer’s social security tax and 50% of self employed tax
- 50% can be postponed till December 2021
- 50% can be postponed till December 2022
- Deferral of payment is not available for employers that have debt forgiven under the Paycheck Protection Program.
What it means for business: defer payroll tax payment to increase cash flow.
CARES ACT: Payroll Retention Credit
- Refundable tax credit for 50% of qualified wages made between March 13 to December 31 2020
- Eligible employers are:
- Carrying on trade or business in 2020
- employers whose (i) operations were fully or partially suspended due to a COVID-19 related shut-down order,
- or (ii) gross receipts declined by more than 50% when compared to the same quarter in the prior year
- Cap at first $10K per employees including health benefits
- Not available for those that have obtained the Paycheck Protection Program
- Wages paid under the expanded FMLA and sick leave due to COVID-19 need to be excluded.
What it means for businesses: for businesses that are impacted by COVID-19 but continue to pay their employees, you can get refundable credit up to $10K per employee paid.
CARES ACT: NOL Carryback
- NOL incurred in 2018, 2019, and 2020 can be carried back to 5 years
- Amended returns are needed to claim the NOL carryback
- Suspend the 80% limitation on NOL for tax year 2018 to 2020
What it means for businesses: if you have net business losses in 2018 to 2020 and your business has business profits in the past years, you can file amended returns to use the NOL to offset past business profits and get a refund.
As the COVID-19 situation continues to unfold, it’s important to stay informed of all the tax updates to help your business. Each update provides invaluable information and potential funding necessary for your business operations.
If you’re searching for qualified CPAs and trust partners in bookkeeping and taxes for your business, especially during these challenging times, please contact us here. We look forward to helping you navigate through these times.