The coronavirus pandemic has impacted our economy, businesses, and lives in unprecedented ways. Many businesses found themselves in an uncertain position as we began to feel the full effects of the shutdown.
To try and prevent economic disaster, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. The law provides more than $2 trillion in relief to protect Americans from the economic impact of the virus.
As part of this program, businesses can apply for and receive support for the cost of payroll, overhead, and other business expenses. However, because the COVID-19 crisis and the resulting supportive programs are so unprecedented, many people are unclear how these relief efforts will impact business taxes next year. In this blog, we’ll break down what you need to know.
CARES Act Offers Funding Options for Small Businesses
The CARES Act has a few funding options for small businesses impacted by the coronavirus pandemic. These relief options include:
- Debt relief
- Bridge Loans
- Loan advances
- Tax credits
- Tax payment deferment
One way many small businesses have found support during the pandemic is through the Paycheck Protection Program (PPP), which is part of the CARES Act. Through this program, small businesses are eligible to receive funds to pay for:
- Up to eight weeks of payroll, plus benefits
- Interest on mortgages
This relief program has made a difference for small businesses across the country. However, there are several other options, depending on your unique situation and business needs.
Understanding the Tax Implications of Coronavirus Relief
For most businesses, coronavirus relief shouldn’t cause any problems come tax time. In fact, there are several valuable tax credits your business may be able to take advantage of. However, some of these credits come with restrictions or limitations, so make sure you understand the options and stipulations before you file.
Employee Retention Tax Credit
One of the most notable provisions of the COVID-19 relief efforts is a new tax credit called the Employee Retention Tax Credit. This tax credit is designed to help businesses keep their employees on staff during the pandemic.
The credit is available to your business if your operations were partially or completely shut down during the coronavirus stay-home order, or if your gross receipts decreased by 50% or more compared to the same quarter the previous year. Businesses eligible for this refundable tax credit on wages can get up to $10,000 per employee.
Family and Sick Leave Tax Credit
Small businesses (those with fewer than 500 employees) are required to give employees paid sick and family leave for illness and reasons related to coronavirus. The CARES Act offers those businesses a refundable tax credit that would cover the entirety of coronavirus-related employee leave. This family and sick leave credit is paid quarterly.
Postponed Payroll Tax Payments
The CARES Act also lets small businesses and self-employed individuals delay their payroll tax payments. If you take advantage of this deferral, you’ll need to pay 50% of the taxes owed by December 31, 2021. Then, you’ll need to pay the other 50% by December 31, 2022.
All business can take advantage of this deferral, not just those that have been directly affected by cases of COVID-19. However, the CARES Act payroll tax deferment is generally not available to small businesses participating in the Paycheck Protection Program. To learn whether your business qualifies, you should speak with an experienced tax attorney.
Fluctuations in Net Operating Loss
For businesses that have experienced changes in their net operating loss, the CARES Act offers some relaxed limitations. If your business experienced net operating losses in 2018, 2019, or 2020, 100% of that net operating loss can be carried back up to five years and forward up to 20 years, subject to a limitation of 80%.
Understand Your CARES Act Options With Help From an Experienced Tax Professional
The goal of the CARES Act is designed to make it easier for small businesses like yours to survive and thrive despite the economic hardships. If you have questions about how your business can take advantage of these opportunities, don’t wait to speak with an experienced tax attorney. We’re here to help!
S.H. Block Tax Services: Your Go-To Maryland Tax Attorneys
At S.H. Block Tax Services, we’re proud to help businesses like your solve their tax problems for good. If you have questions about your options or how to make the most of the opportunities the CARES Program has to offer, please don’t hesitate to reach out to us. Our team of attorneys and support staff have years of experience helping small business owners like you make the best decisions possible for their businesses.
Ludwig, S. (2020, April 15). Coronavirus Small Business Tax Changes: Everything You Need to Know. U.S. Chamber of Commerce. Retrieved from https://www.uschamber.com/co/start/strategy/coronavirus-legislation-and-small-business-taxes
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.