Update #7 – New IRS Credits
REMINDER: The SBA has mandated that no penalties will be incurred if a borrower decides to return their Paycheck Protection Program loan…BUT monies must be returned by Thursday, May 14.
If you didn’t apply for the PPP or didn’t utilize it, the IRS rolled out three credits to encourage businesses to keep employees on their payroll. Here’s what we know:
Employee Retention Credit
Employers may be eligible for a refundable tax credit against employer Social Security tax equal to 50 percent of “qualified wages” paid by employers to employees during the COVID-19 crisis. The tax credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
The credit is available to all employers regardless of size, including tax-exempt organizations.
The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees.
Qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Employers will calculate these measures each calendar quarter.
Paid Sick Leave Credit
The paid sick leave credit is designed to allow businesses to receive a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine/self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Here’s what it means:
- Quarantined employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.
- The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus. You can also receive the credit from an employee caring for a child because the child’s school, place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.
Family Leave Credit
- Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit. They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
Check with your payroll processing firm for information related to this, and to ensure you are capturing all possible deductions.
Reminder: The above credits are NOT available to small businesses who take SBA loans including PPP and EIDL.
Question of the Day
Where can I find PPP loan forgiveness guidance and regulations?
As of today, the SBA has YET to release all the details on PPP loan forgiveness regulations.
Once we have and are able to review PPP loan forgiveness guidance, HTH can provide a letter of engagement and an estimate of the cost to work with our clients on their PPP loan forgiveness application/questions.
If you have further questions on documentation, please contact our team. We will post questions on our social media feeds and in our upcoming briefs.