IRS highlights employer credits for businesses during Small Business Week
During Small Business Week, the IRS reminds owners and self-employed individuals of the employer credits available to them during COVID-19.
These credits were specially created to help small business owners during this unprecedented time and the IRS wants to ensure small business owners know the relief they can provide.
Employee Retention Credit
This was designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer who was financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. However there are two exceptions. State and local governments and their instrumentalities and small businesses who take small business loans.
Qualifying employers must fall into one of two categories
1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of the quarter.
Paid Sick Leave Credit and Family Leave Credit
This credit was designed to allow businesses to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine, self-quarantine, or has COVID-19 symptoms and is seeking medical diagnosis. Those employers 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 credit for the employees who are unable to work due to caring for someone with COVID-19 or caring for a child because their school or place of care is closed. Those employees are entitled to paid sick leave for up to two weeks (80 hours) at 2/3 the employee’s regular rate of pay or up to $200 per day and $2,000 in total.
Employees are also entitled to paid family and medical leave of 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.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers are entitled to immediately 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 December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
How will employers receive the credit?
Employers can be reimbursed immediately by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Employers who are eligible can also request an advance of the Employee Retention Credit by submitting Form 7200.
The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs that will help answer questions.
Updates on the implementation of the Employee Retention Credit and other information can be found on the Coronavirus page of IRS.gov.
This article was created on the basis of the IRS article: IRS highlights employer credits for businesses during Small Business Week
