The Pandemic Triggers Legislation

The CARES Act and the subsequent COVID-19 Related Tax Relief Act of 2020 provided several changes for businesses. In order to retain employees and help prevent businesses from closing permanently, many incentives were provided to businesses. We’ll discuss the most common ones still available today.

DEFERRAL OF SOCIAL SECURITY TAX

The CARES Act allows employers to defer paying the employer’s portion of the social security tax on wages earned from March 27, 2020 through December 31, 2020. These taxes are required to be paid to the Treasury within two years to avoid penalties and interest.

In early August 2020, an executive order was signed that allows employers to defer withholding and paying the employee portion of social security tax for the period September 1 - December 31, 2020. Starting on January 1, 2021, employers must begin withholding the deferred taxes ratably through December 31, 2021 or penalties and interest will be charged.

EMPLOYEE RETENTION TAX CREDIT EXPANDED

There are now three different categories of Employee Retention Tax Credits:

1. A refundable payroll tax credit of up to $5,000 per employee is available to businesses that were partially or fully shut down due to a government mandate in 2020 or had a drop in gross receipts in 2020 compared to 2019 but managed to retain employees.


2. The Employee Retention Credit was expanded and extended until June 30, 2021, during which time eligible businesses can claim a tax credit of up to $14,000 per employee.


3. Businesses that were prevented from operating because they were impacted by qualified natural disasters at any time during 2020 or 2021, but continued to pay employees, can claim a credit of up to $2,400 per employee.

PAID SICK LEAVE CREDIT

For employers with fewer than 500 employees, tax credits for paid sick leave are available until March 31, 2021. If an employee contracted COVID-19, was instructed to self-quarantine, is caring for someone that must self-quarantine, or caring for a child due to school or childcare closures, a credit of up to 80 hours, (up to $5,110 per employee), is available for the wages an employer pays while these employees are on sick leave.

ECONOMIC INJURY DISASTER LOANS

The Small Business Administration is providing low-interest loans to small businesses and non-profit organizations that have suffered a loss of revenue due to the pandemic. These 30-year loans are intended to be used to cover working capital and normal operating expenses. Payments are generally deferred for the first year; however, interest still accrues. But with interest rates as low as 2.75%, it can provide a low-cost influx of cash for struggling businesses.

ECONOMIC INJURY DISASTER LOAN (EIDL) ADVANCES

Eligible businesses that didn’t receive the full $10,000 EIDL grant earlier can now reapply for the difference. The grants are offered in conjunction with the Economic Injury Disaster Loan program. And unlike EIDL Loans, the advances do not need to be repaid.

CORPORATE CHARITABLE GIVING

Similar to the personal charitable giving changes provided under the CARES Act, some businesses are now able to deduct qualified contributions of up to 25% of taxable income in 2020. This is an increase from the 10% usual rate.

NET OPERATING LOSSES

The CARES Act suspended the no carry-back rule and allows net operating losses to be carried back five years for losses incurred in tax years 2018 - 2020. It also eliminated the 80% limitation and now 100% of losses can be carried back. The old net operating loss rules return for 2021.