COVID-19 Tax Changes for Small Businesses

As a small business owner, you may well be struggling as the coronavirus rages. So it can be reassuring to know about the tax changes, credits, extensions, and other forms of relief that could help your company get through the pandemic.

Families First Coronavirus Response Act: Credit for Sick and Family Leave

The law aims to protect public health and the economy by limiting the spread of the disease, keeping workers employed, and keeping small businesses afloat.

Sick Leave Tax Credit

• Who is eligible: Businesses with fewer than 500 employees.
• What employers get: 100% reimbursement for up to 80 hours of paid sick leave, up to $511 per day but no more than $5,110 in total; reimbursement for health plan costs and the employer's portion of Medicare taxes related to those work hours; no payroll tax liability.
• Applicable dates: April 1, 2020, through Dec. 31, 2020.
• How to get the credit: Reduce your employment tax deposits when you file your quarterly tax return, or submit the new streamlined claim form, Form 7200.
• Exceptions: Businesses don't have to provide sick leave to any health care providers or emergency responders they employ.
• Caveats: Employers should not try to game the system by withholding payroll tax deposits and submitting Form 7200 for the same reimbursements. Businesses will have to reconcile all payments made and credits received on their 2020 tax returns. (The same applies to the family leave and employee retention tax credits described below.)

Family Leave Tax Credit

• Who is eligible: Businesses with fewer than 500 employees.
• What employers get: A refundable tax credit for the full amount of any family leave the new law requires them to pay. Family leave payments can be up to $200 per day, not to exceed $2,000 per employee. The tax credit also covers the employer's related health plan expenses and Medicare taxes.
• Applicable dates:April 1, 2020, through Dec. 31, 2020.
• How to get the credit: Reduce your employment tax deposits when you file your quarterly tax return, or submit the new streamlined claim form, Form 7200.
• Exceptions: Businesses with fewer than 50 employees are not required to provide family leave to an employee who doesn't have child care if "the viability of the business is threatened."
• Caveats: Keep documentation showing how you calculated the amount of family leave wages eligible for the tax credit. (Also do this for the sick leave tax credit described above and the employee retention credit described below.)

Employee Retention Credit

• Who is eligible: Businesses with fewer than 500 employees whose operations have been fully or partially suspended by COVID-19 closures or whose gross receipts are less than 50% of what they were for the same quarter in 2019.
• What employers get: A refundable tax credit for 50% of up to $10,000 in qualified wages, including health plan expenses, up to a maximum of $5,000 per employee.
• Applicable dates:March 13, 2020, through Dec. 31, 2020.
• How to get the credit: Reduce your employment tax deposits when you file your quarterly tax return, or submit the new streamlined claim form, Form 7200.
• Exceptions:If you receive a Paycheck Protection Loan, you cannot claim the Employee Retention Credit.
• Caveats: Employers can claim this credit in addition to the sick leave and family leave credits, just not for the same wages.

CARES Act

Along with the well-known stimulus payments to individuals and Paycheck Protection Loans, the act contains many types of tax relief.

Federal Tax Deadline Extension

• Who is eligible: Any business with a federal income tax return or payment due April 15, 2020.
• What small businesses get: An extra three months to file and pay their 2019 federal taxes.
• Applicable dates: The April 15 deadline is pushed back to July 15, 2020.
• How to get the extension: No action needed; extension is automatic.
• Exceptions: This extension does not apply to taxpayers who have filing or payment due dates other than April 15, nor does it apply to payroll and excise tax deadlines.
• Caveats: Your state tax-filing deadline may not have been extended.

Estimated Tax Payment Deadline Extension

• Who is eligible: Any business with an estimated tax payment
• What small businesses get: The 1Q estimated tax payment deadline is postponed from April 15 to July 15, 2020.
• Applicable dates: April 15, 2020
• How to get the extension: No action needed; extension is automatic.
• Exceptions: The 2Q estimated tax payment deadline is also extended to July 15, 2020.
• Caveats: Your state filing deadline may not have been extended.

Delayed Payment of Payroll Taxes

• Who is eligible: All employers.
• What small businesses get: Additional time to pay their share of the 6.2% Social Security tax on employees' wages. You can defer paying this tax for all of 2020. Then, pay the first half that you normally would have paid in 2020 by Dec. 31, 2021, and pay the second half by Dec. 31, 2022.
• Applicable dates: March 27, 2020, through Dec. 31, 2020.
• How to get the extension: Keep the money and document the deferred deposits on your quarterly tax return.
• Exceptions: If you manage to get a Paycheck Protection Loan, you cannot delay payment of payroll taxes after your loan has been forgiven. Any tax deposits deferred up to the point of the PPPL forgiveness continue to be eligible for deferral, though. Details from the IRS are here (see FAQs 4 and 7).
• Caveats: If you defer these payments, make sure you have a solid plan to catch up.

Other Tax Changes for Small Businesses

• Your business might also benefit from higher limits on the business interest tax deduction: You may be able to deduct interest payments totaling up to 50% of taxable income instead of 30%.
• You can also carry back net operating losses incurred in 2018, 2019, and 2020 over the previous five years by deducting them on an amended tax return, which might put some extra cash in your pocket.
• The proceeds from a forgiven Paycheck Protection Loan are not taxed as canceled debt normally would be.