Tax Relief Provisions for Businesses
Brief summary of tax relief provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Families First Coronavirus Response Act as applicable to Business Taxpayers including self-employed, contractors.
1. Paycheck Protection Program (PPP)
PPP provides small businesses with funds to pay up to 8 weeks of payroll costs including certain payroll related benefits as well as interest on mortgages, rent, and utilities. This topic is covered in more details here https://www.clickmytax.com/post/covid-19-paycheck-protection-program-ppp.
2. Payroll Tax Credit Refunds
Subject to limitations and exceptions, employers of less than 500 employees are required to provide mandatory sick time and paid family leave. Employers can avail payroll tax credits to offset the costs. Eligible self-employed individuals also qualify for the credits. Employers with fewer than 50 employees can be exempted.
The paid leave is available for up to 10 weeks. The first 10 days of the leave may consist of unpaid leave or accrued paid time off. The amount paid per day is calculated based on the “two-thirds rule” discussed in the Families First Coronavirus Response Act. The credit is generally available for up to $200 in wages for each day an employee receives qualified family leave wages. A maximum of $10,000 in wages per employee would be eligible for the credit.
Two weeks of sick pay must be paid when the employee is unable to work for coronavirus-related reasons. The amount of the sick pay depends on many factors, with the maximum being $511 per day ($5,110 in total) or $200 per day ($2,000 in total) based on the exact reason the employee is unable to work.
3. Employee Retention Credit
Eligible employers are allowed a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee.
Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year.
4. Delay of Payment of Employer Payroll Taxes
Employers and self-employed individuals can defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages.
The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022.
5. Modifications for Net Operating Losses (NOLs)
Temporary changes to the NOL carryback rules allow business to carryback certain losses. Under the TCJA, NOLs are subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year. The relaxed rules provide that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the 80% taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns.
6. Expansion of Unemployment Benefits
The size and scope of unemployment benefits has been expanded in the new Act. It includes relief for workers who are self-employed, as well as independent contractors. These changes are temporary.
• Provides $250 billion to expand unemployment benefits
• Makes sure self-employed and independent contractors, like Uber drivers and gig workers, can receive unemployment during the public health emergency. It also includes support to state and local governments and nonprofits so they can pay unemployment to their employees
• Makes benefits more generous by adding a $600/week across-the-board payment increase through the end of July. In addition, for those who need it, the new Act provides an additional 13 weeks of benefits beyond what states typically allow.
Unemployment insurance eligibility is expanded to those who are not eligible for regular compensation or extended benefits under state or federal law, or previously passed pandemic emergency unemployment compensation.
To qualify, an individual must self-certify that s/he is otherwise able and available to work but cannot for one of the following reasons:
• Diagnosis of COVID-19 or is experiencing the systems and seeking a medical diagnosis
• Member of household has COVID-19
• Individual is providing care for a family member or member of household who has been diagnosed with COVID-19
• Child or other person in household for whom the individual is the primary caregiver is unable to attend school or other facility because of COVID-19 and such attendance is necessary for that individual to attend work
• Individual is unable to reach place of employment because of mandatory quarantine
• Individual has been advised by a medical professional to self-quarantine due to COVID-19 concerns
• Individual was scheduled to start a job and doesn’t have a job or unable to reach job due to COVID-19
• Individual has become the primary source of income or major support for household due to head of household dying due to COVID-19
• Individual has quit job as a direct result of COVID-19
• Place of business is closed due to COVID-19
• Individual is self-employed, is seeking part-time employment, doesn’t have sufficient work history, or otherwise doesn’t qualify for regular unemployment or extended benefits
• This does not include individuals who can telework with pay or who are receiving paid sick leave or other leave benefits due to other provisions in COVID-19 relief.
This assistance is available beginning Jan. 27, 2020 and goes until Dec. 31, 2020 with a 39-week maximum for an individual receiving assistance. The bill also allows for states to waive their one week waiting period for unemployment benefits and the federal government will reimburse them for that week, thus incentivizing states to provide an immediate benefit.