Updated July 11, 2020
The CARES Act created assistance for business owners struggling to pay to their employees during the shelter-in-place orders. Among other programs is the Payroll Tax Credit. It’s a significant tax break and we recommend taking advantage of it if you meet the criteria. The credit is one of several methods for business owners to obtain assistance during the pandemic so there is some planning involved to determine which combination will yield the best results for your situation.
There are two components to this credit:
1. A refundable credit for up to 50% of each employee’s wages, at a maximum of $10,000 per quarter.
2. A deferral of the tax. This part does not include any credit. It’s just a deferral on the timing of the employer’s portion of the payment.
Payroll Tax Credit and Deferral Qualifications
Before planning on utilizing this credit, understand the three rules for qualification:
1. PPP loan recipients do not qualify: The CARES Payroll Tax Credit is only available to businesses that did not receive a PPP loan. Recipients have already received a break on payroll-related expenses, so receiving this credit would be like double-dipping.
2. Essential businesses probably won’t qualify: the credit is only available to businesses that were partially or fully suspended due to government restrictions. There is an exception to this rule, which is next on the list.
3. Essential businesses can qualify if they experienced greater than a 50% reduction in gross receipts from the prior year. Business owners should look at the first quarter of 2020 and ask, “What did gross receipts look like in the first quarter of 2020 compared to the same period of 2019?” And if it’s a great reduction you’ll still qualify for this benefit regardless of essential status.
Payroll Tax Deferral Due Dates
The Social Security and Medicare tax that is normally paid according to your schedule (either quarterly or weekly) on wages incurred March 13, 2020, through December 31st, 2020. The full amount is not penalized and comes due in two installments. 50% of the total is due December 31, 2021, and the rest on December 31, 2022. An exceptionally long break for these unprecedented times.
If your business didn’t get a PPP loan, employers can still get a nice break on payroll taxes, either in timing or payment, or both. At the time of this writing, the PPP Loan application window has been extended to August 8, 2020 and there are significant loan funds still available. Contact your tax advisor to calculate which option is available and best for your situation. For more information about PPP Loans, availability, recipients and resources visit whhcpas.com/covid-19
By: Ben Hubbell, CPA
Partner
Ben Hubbell is a leader in WHH’s real estate practice group. His expertise in complex transactional consulting, pass-through entities and tax-deferred exchanges has been honed over his 12 years at the firm. Ben has a particular talent for interpreting and utilizing various applications within the increasingly complex tax code. He has been an integral part of our research team regarding the new tax laws and specifically Qualified Opportunity Zones.
