CARES Act – Maximizing Credits to Reduce Payroll Taxes

CARES Act and how to Maximize Credits to Reduce Payroll Taxes:

It’s the end of the calendar year, and as a small business owner, you are probably busy, preparing for holiday sales and planning for the new year. Tax season doesn’t start until April, but there are a few things you need to do now in order to receive some tax credits you may be eligible for.

You’ve worked hard, you’ve managed to retain or hire back most of your employees (if not all of them) and business if finally picking up again, post-pandemic. You’ve begged, borrowed, offered incentives, bonuses, maybe your first-born to get people back on the job, and retain your employees. GOOD JOB!  Now it’s time to reap some of the rewards for maintaining and keeping your current base of employees in a paying job.

 

What is the CARES Act?

When the country shut down in 2020 due to COVID 19, the government passed an economic relief bill called the Coronavirus Aid, Relief and Economic Security (CARES) Act. The $2.2 trillion economic stimulus bill offered fast and direct economic assistance for American workers, families, industries and small businesses.

 

What did the CARES Act do for small businesses?

Other than adding trillions to the massive National Debt, the CARES Act offered small businesses a means (and federal dollars) to keep from going out of business. Three different programs were put into place to help small Businesses:

  • Small Business Tax Credit Programs
    • Tax Benefits
    • Employee Retention Credit
    • Paid Leave Credit
  • Emergency Capital Investment Program
    • Money given to smaller loaning institutions so they could loan money to small businesses in low and moderate-income communities.
  • Paycheck Protection Program
    • Provide resources to maintain payroll
    • Cover costs of hiring back employees
    • Cover costs of applicable overhead

 

How can the CARES Act help me today as a small business?

While most of the CARES Act benefits outlines above have expired, there are still a few benefits that stretch into each quarter of 2021. Another benefit, called the American Rescue Plan extends the availability for small business to take advantage of the Employee Retention Credit (ERC).  If you or your accountant hasn’t heard of this, you need to make them aware!

 

Employee Retention Credit:

The ERC is a credit for small businesses, allowed through December 2021 where you can offset your current payroll tax liabilities by up to $7,000 per employee per quarter. This credit, up to $28,000 per employee for 2021, is available to small businesses who have seen their revenues decline, or even been temporarily shuttered, due to COVID.

The amount of revenue decrease, or business disruption, has been reduced to 20% of a decline in gross receipts during a single quarter in order to make a small business eligible for the entire year.

Here are helpful links to the forms you’ll need to take advantage of the Employee Retention Credit:

Employee Retention Credit 2020 & 2021 One-pager

Employee Retention Credit Snapshot

Employee Retention Credit Quick Reference

 

Paid Leave Credit:

But wait, there’s more! Also available through September 2021 is the Paid Leave Credit for small businesses. Businesses who offered paid leave to employees who took time off due to illness, quarantine, or caregiving could take dollar-for-dollar tax credits equal to wages of up to $5,000 if they gave paid leave to employees who are sick or quarantining.

Although the law no longer required businesses with 500 or fewer employees to offer paid leave as part of the continuing COVID-relief efforts, if a business provided paid leave to its employees, it can claim these dollar-for-dollar tax credits for wages paid through September 30, 2021. These credits can be claimed against payroll taxes on a quarterly basis.

The forms for Pai0064 Leave Credit may be found here:

Paid Leave Credit 2020 & 2021 One-pager

Paid Leave Credit and COVID Relief

Paid Leave Credit Snapshot

 

Confused by the CARES Act and what you need to do to maximize tax credits to reduce payroll expenses? Let us help you outline the best way to claim tax credits and to plan for next year’s tax season. Contact Paris SBDC today!

 

 

For additional information on the CARES act, payroll taxes, and what to expect during tax season, please contact us at the Small Business Development Center – SBDC – Serving Paris area:  Lamar, Hunt, Hopkins, Delta, and Red River counties.