If your business didn’t qualify for or secure a PPP loan, there are several other tax benefits provided by the CARES Act. Here we’re going to take a closer look at some of the most advantageous programs available:
Employee Retention Credit
The Employee Retention Credit (“ERC”) is only available for taxpayers who did not receive a PPP loan. The goal of the ERC is similar to the PPP – it encourages employers to continue to pay employees during the economic downturn.
Eligible employers can receive up to $5,000 per employee for $10,000 worth of eligible wages paid from March 12, 2020 through the end of 2020. Eligible wages are those paid during a calendar quarter where:
- Operations are suspended due to government orders or regulations, OR
- The employer experienced at least a 50 percent reduction compared to the previous year’s quarter
While there is no size limit on businesses that can use the ERC, qualified wages depend on the number of full-time or full-time equivalent (FTE) employees.
- Employers with > 100 employees: eligible wages are those paid when an employee is not working due to business shutdown.
- Employers with ≤ 100 employees: eligible wages are those paid during any period described above, even if the business is operational.
The ERC is claimed against payroll tax deposits, – which keeps additional cash in the hands of the employer during the current downturn. If credits exceed payroll tax deposits, the additional refund balance can be received via a quarterly tax filing.
Some important FAQs we received on the ERC include:
- Do health care costs paid count toward the ERC? Yes!
- What if I am also using the Payroll Tax Relief (read on to next section to learn more on this) – Can I calculate the Payroll Tax Relief, then the ERC, and apply for refunds? Yes, you can first determine the Payroll Tax Relief you will withhold and then calculate and apply the ERC.
- Can I also deduct the wages which generate the ERC? Unfortunately, no. If you have $20,000 of qualifying wages and receive a $10,000 credit, you will have to reduce your 2020 wage expense by the $10,000 credit received.
Payroll Tax Relief
The CARES Act allows employers to defer the employer portion of Social Security taxes due (6.2%) on wages from March 27, 2020 through December 31, 2020. Deposits of these employer Social Security obligations are deferred until:
- 50% of the obligation is due by December 31, 2021
- 50% of the obligation is due by December 31, 2022
This is, in essence, a 0% interest loan from the federal government.
Businesses that did not receive a PPP loan are eligible for this benefit through the end of 2020. Businesses that did receive a PPP loan may only utilize this provision until they receive notice of forgiveness on their loan. Even better news is that employers make take this deferral into account before any other credits that are offset by employment taxes including the Employee Retention Credit and credits created by Families First Coronavirus Act.
Additional Potential Benefits
The CARES Act provides a myriad of other benefits, many of which we touch on in our March 27 piece Business Benefits Available, Courtesy of the CARES Act.
Be sure to consider potential refund opportunities. Those include:
- Taxpayers with Net Operating Losses (“NOLs”) in 2018, 2019, or 2020
- Taxpayers who had pass-through losses limited in 2018, 2019, or 2020
- Businesses who made leasehold improvements, retail improvements, or restaurant improvements (which we now group together as Qualified Improvement Property) in 2018 or 2019
- C Corporations with remaining AMT Credits