Payroll Tax Credits and Other Impacts on Payroll Taxes
Employee Retention Tax Credits (ERTC): The CARES Act created refundable payroll tax credits for businesses that retain their employees during the COVID-19 crisis. These credits are in addition to the payroll tax credits provided in the Families First Coronavirus Response Act for employers providing emergency paid and sick leave to employers related to the virus. The Employee Retention credits are available if your business has been fully or partially suspended as a result of a government order. For employers with under 100 employees, a credit of up to $10,000 per person may be available for wages paid to employees. The credits equal a maximum of 50% of the qualified wages paid after March 12, 2020, through December 31, 2020. This credit is not available if the employer takes a Paycheck Protection Loan. UPDATE: Consolidated Appropriations Act, 2021. The Act passed in December 2020, and updates and expands upon the ERTC program. In 2021, the credit rises to 70% and extends through July 1, 2021. Additionally, employers can now both claim the Employee Retention Credit and apply for a PPP loan, which was not permitted last year, but wages calculated with the credit are not forgivable costs under a PPP loan. The Act allows for companies to retroactively apply this for 2020 and claim the credits on the Q4 2020 payroll tax filings, or amend previous quarters filings. Please let us know if you have any questions as we wait for further guidance and clarification on these changes.
Payroll Tax Credits under the Families First Coronavirus Act (FFCA): The FFCA allows for employers fewer than 500 employees to claim tax credits on amounts paid to employees who are unable to work due and are on paid sick leave or public health leave due to the Coronavirus. The credits apply against the employers share of Social Security and Medicare taxes and equal the amount paid by the employers to employees under these leave programs. The credits cover 10 days of paid leave and the amount of the credit depends on the type of the leave.
Type 1 includes leave for employees who are caring for someone subject to quarantine, employees who are caring for their child due to school or childcare closure and other similar circumstances. These credits are limited to $200 per employee per day and $2,000 total.
Type 2 includes leave for the employee being quarantined or isolated by government order, the employee has been advised to quarantine or isolate by a healthcare provider or the employee is experiencing symptoms and seeking a medical diagnosis. The amount changes for these credits to up to $511 per day and $5,110 in the aggregate per employee.
Delay of Employer Payroll Taxes Due: The CARES Act also allows employers and self-employed individuals to postpone the payment of their portion of Social Security tax on employee's wages through December 31, 2020. The Act defers the payment requirement and requires 50% to be paid by December 31, 2021 and the remaining by December 31, 2022.
Please Note: *If you take advantage of one of the SBA COVID-19 Relief loans, you will be unable to take these credits.
Please see here for Loan options available related to COVID-19 relief.
Please see here for additional information from the CARES Act
IRS Coronavirus HUB
IRS Release Related to Paid Leave and Tax Credits