COVID-19 has been impacting businesses of all sizes—large and small. As a result of which, the global markets are seeing a steep fall in their sales, and many small businesses are finding it challenging to keep their employees afloat.
In order to provide relief measures and prevent the economic recession that the country is headed into, policymakers crafted several legislations in March 2020- the CARES and FFCRA Acts. Let's read in detail about the provisions these acts offer below:
1. FFCRA's Sick & Family Medical Leaves:
On March 18, 2020, the Families First Coronavirus Response Act (FFCRA) was signed into law to address COVID-19. This law is effective from April 1, 2020, to December 31, 2020, and constitutes the Emergency Paid Leave and Extended Family Medical Leave that requires all employers to provide up to two weeks (80 hours) of paid sick leave plus 12 weeks (only 10 weeks are paid) of family medical leave for reasons related to the deadly virus.
By doing so, employers can receive refundable tax credits to offset the costs of providing these leaves to employees. Employers can report the total wages paid and credits for each quarter in Form 941.
However, wages claimed for leave tax credits can’t be used for the employee retention tax credit.
See our article to understand whether you are eligible for this program.
Now, let's find what's inclusive in the $2 trillion Coronavirus stimulus bill- CARES (Coronavirus Aid, Relief, and Economic Security) Act.
2. Employee Retention Credit:
This credit helps eligible employers (including tax-exempt organizations) to receive a tax credit for 50% of wages (Including qualifying health plan expenses) paid up to a maximum of $10,000 per employee.
However, employers who receive a loan under the Paycheck Protection Program shouldn’t claim employee retention credits.
Employers can report their total wages and health insurance cost every quarter in Form 941, beginning with the second quarter. Eligible employers can also claim an advance payment from the IRS by submitting Form 7200.
See our article to understand how refunds work.
3. Social Security Deferral Program:
Under the CARES Act, all employers can defer the 6.2% of their portion of social security tax payments for each quarter. For payments deferred, employers have the option to pay half of the taxes on or before December 31, 2021, and the remaining half on or before December 31, 2020.
However, employers who receive a loan under the Paycheck Protection Program shouldn’t defer social security taxes after the PPP loan is forgiven.
See our article to understand more about this relief measure of CARES Act.
4. Paycheck Protection Program:
Eligible employers will receive a loan of up to $10 million through the PPP program to cover payroll costs, including benefits. These funds will be provided as a loan that can partially or fully be forgiven, and no collateral or guarantees are required for these loans. Even sole proprietorships, self-employed, and nonprofits are eligible to be qualified under this program.
Please note that a loan under PPP makes an employer ineligible to claim employee retention tax credits. Also, using paid leave tax credits under FFCRA may reduce the loan amount to be forgiven.
See our article to learn more about this program.
It's an emotional and stressful time for all, and we suggest you browse through these relief programs and opt whichever are applicable. Stay safe!