In addition to the loans and grants being made available to businesses during this pandemic, there have been several changes made to taxes in an effort to provide further relief. Businesses of all sizes are encouraged to consult with their financial advisors and accountants to determine what options are in their best interest, as this must be decided on a case-by-case basis. The following list is a summary of some of the changes and extensions that are available to help at this time.
Federal Income Tax Filing & Payment Deadline Extension
The filing deadline for federal tax returns has been extended to July 15, 2020. The deadlines for federal tax payments of up to $10 million, as well as estimated taxes for 2020 originally due on April 15th, have been extended to July 15, 2020.
To find out if your business still has more time to file or more time to pay state and local taxes this year as a result of the coronavirus, visit the Illinois Department of Revenue website. Several states have already aligned their tax filing and payment deadlines with the new federal deadline. States also may waive or reduce penalties on late tax payments.
Employee Retention Credit
This refundable tax credit has been designed to help businesses keep workers on thepayroll, in the event that COVID-19 has caused them to either partially or fully shut down, or experience at least 50% decrease in gross receipts in a quarter compared to the same calendar quarter in the prior year. The credit allows for businesses to claim 50% of wages, including employer-paid health plan expenses, up to $10,000 per employee (with a maximum credit of up to $5,000 per employee), for the period March 31, 2020, through December 31, 2020. Businesses with 100 or fewer employees qualify, regardless of whether they remain open for operation. A business that employs more than 100 employees qualify only if the wages are paid to employees, but said employees are not able to do their jobs due to business closure or lack of business. However, businesses cannot use the same wages for the Employee Retention Credit and the credit for paid family or medical leave, nor can businesses claim this credit if they receive assistance under the Payroll Protection Program.
Additionally, businesses can get an advanced payment of credit so they do not have to wait until the end of the year to claim it. The following options for this credit are available to qualifying businesses:
- Businesses may keep their share of Social Security tax already withheld, up to the amount of the credit, and then must reconcile the amount on their Form 941 payroll tax return when filing their quarterly return;
- Businesses may claim an advance of the credit on Form 7200 even before they pay employees, but then must reconcile the amount on Form 941 when filing their quarterly return; OR
- Businesses may wait and claim the refundable credit on Form 941 to recover the payroll tax already paid during the quarter.
Paid Sick Leave Credit
Eligible employers paying employees Paid Sick Leave due to COVID-19 quarantine or symptoms while seeking a medical diagnosis, may receive a refundable sick leave credit at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of up to 10 days.
Eligible employers paying Paid Sick Leave to employees that are caring for someone who tested positive, may receive refundable sick leave credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to a total of 10 days. Additionally, eligible employers may be eligible to receive additional credits based on costs to maintain health insurance for the eligible employee while on sick leave.
Eligible employees will be paid sick leave if they test positive for COVID-19 or if they are caring for someone who has tested positive.
Child Care Leave Credit
In addition to the Paid Sick Leave Credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, eligible employers may receive a refundable child care leave credit for up to 10 weeks of qualifying leave, equal to two-thirds of the employee’s regular pay, capped at $200 per day, or $10,000 in the aggregate. Additionally, eligible employers may be eligible to receive additional credits based on costs to maintain health insurance for the eligible employee while on child care leave. The Child Care Leave Credit is available under certain conditions and is not available to those whose employers provide for employees to work remotely.
Payroll Tax Postponement
Businesses may defer the payment of Social Security contributions for employees from now until January 1, 2021, so long as they are not receiving assistance under the Payroll Protection Program. The payments would become due in increments, with 50% due on December 31, 2021, and December 31, 2022. However, the employer’s portion of Medicare taxes, as well as the employee’s portion of Social Security and Medicare taxes, are NOT deferred. For estimated tax purposes, self-employed tax-payers, including Schedule C and Schedule F filers, may also defer 50% of their 2020 Social Security taxes (6.2% of net earnings, up to $137,700).
Net Operating Loss Carryover
Businesses may take Net Operating Losses (NOL) earned in 2018, 2019 and 2020, and carry over those losses for a total of five years. Additionally, the NOL limit of 80% of taxable income is suspended, so the full amounts of NOL can be used to offset their taxable income. Businesses with previous alternative minimum tax liability, as well as tax credit carryforwards, can claim larger refundable tax credits than years prior. Additionally, modifications have been made to the loss limitations for non-corporate tax-payers and the rules regarding excess farm losses, and there will be technical corrections to NOLS from the tax years 2017 and 2018.
Miscellaneous Amendments to Provide Additional Tax Relief
- Technical corrections to the treatment of depreciation on Qualified Improvement Property,
- Temporary suspension of the excise tax applied to alcohol used to produce hand sanitizer for the tax year 2020.
- Suspension of Aviation Excise Taxes until January 1, 2021, resulting in an estimated reduction in federal revenue of approximately $8 billion in 2020.
- Businesses may contribute up to $5,250 annually towards student loans on behalf of employees, and said amount would be excluded from their taxable income.
- The Net Interest Deduction Limitation has been amended expanding the limits to businesses’ ability to deduct the interest paid on their tax returns from 30% of earnings before interest, tax, depreciation, and amortization, to 50% for 2019 and 2020, to help increase liquidity during this crisis.
While these are some of the options available, use caution use, and make sure that you follow all applicable rules. Some of these benefits are changing as time progresses so ensure that you are reviewing the most up to date provisions about these benefits.
Written by Amanda Engelman
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