Available Payroll Tax Credits through Families First Coronavirus Response and CARES Acts

DEFERRAL OF PAYROLL & SELF-EMPLOYMENT TAXES

Employer’s share of the 6.2% Social Security taxes normally due between now and 12/31/20 may be deferred with 50% payable by 12/31/21 and the other 50% payable by 12/31/22.

Similarly, a self-employed taxpayer can defer 50% of his or her self-employment tax that would be due from now through 12/31/20 with 25% payable by 12/31/21 and the remaining 25% payable by 12/31/22.

If an employer defers the actual payment of payroll taxes, that employer CAN still count the payroll taxes when calculating the employee retention credit. 

This deferral is NOT available to any business that takes out a Paycheck Protection Program loan under Section 7(a) of the Small Business Act.

EMPLOYEE RETENTION TAX CREDIT

For a business of any size (including non-profits) that is forced to suspend or shut down operations due to COVID-19, but continues to pay employees during that period, the CARES Act includes a one-year only credit against an employer’s 6.2% share of Social Security payroll taxes.

For wages paid after March 12, 2020 and before January 1, 2021, eligible employers will be allowed a new refundable payroll tax credit equal to 50% of the qualified wages paid. The total eligible wages per employee are $10,000, resulting in a maximum credit of $5,000 per employee.

A business is eligible for the credit in either of 2 ways:

1. The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19, OR
2. The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019. The business will then be entitled to a credit for each quarter, until business has a quarter where it’s recovered sufficiently that its receipts exceed 80% of what they were for the same quarter in 2019.

Qualified wages include amounts paid to maintain group health insurance.

The credit is refundable if it exceeds the business’s liability for payroll taxes.

This credit is NOT available to any business that takes out a Paycheck Protection Program loan under Section 7(a) of the Small Business Act.