Tax Credits to Help Small Businesses

CARES act loans and grants have received a lot of attention from small business owners hurt by the Covid-19 pandemic. But there are two important tax credits you need to know about. Using these credits can help your company’s finances bounce back from pandemic losses.

The employee retention credit: The IRS says “The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.” There is a cap on the wages covered under this program, so the most any one employer can receive in a credit is $5000 per employee.

Business and finance website The Motley Fool explains, ” The credit is applied against the employer’s share of Social Security and railroad retirement benefit taxes. But because it is fully refundable, employers are entitled to a refund even if the amount of the credit exceeds the taxes due. Eligible employers can reduce the amount of federal taxes they’re depositing if they expect to receive this credit and/or can request an advance on it, in the form of a check.” Remember, the credit is refundable. In other words, if your credit is $10,000, and you only owe $3,000 in taxes, you’ll receive $7,000 back from the IRS. Keep in mind, if you received a  PPP loan, your business can’t claim Employee Retention Credits.

Paid Family and Sick Leave: The Families First Coronavirus Response Act requires employers to provide employees with paid sick leave or expanded family and medical leave for COVID-19 related reasons. But the IRS “also provides small and midsize employers refundable tax credits that reimburse them, dollar-for-dollar, for the costs of that leave”. Which employees are eligible for paid leave? According to the Motley Fool:

  • Those who can’t work because they are quarantining or because they’re experiencing coronavirus symptoms and waiting for a diagnosis are entitled to up to 10 days of paid sick leave at the higher of their standard pay or the federal or state minimum wage. The maximum payment is $511 per day and $5,110 for the 10 days. 
  • Employees who can’t work because they’re caring for someone with coronavirus or because their child care became unavailable for a coronavirus-related reason are entitled to up to two weeks of paid leave at the higher of two-thirds of their pay or federal or state minimum wages. The maximum payout is $200 daily and $2,000 total. 
  • Employees who can’t work because they must care for a child whose school or daycare is closed for coronavirus-related reasons are also eligible for paid family and medical leave for up to 10 weeks. They’re paid at two-thirds their regular pay, up to a maximum of $200 daily and $10,000 total. 

Although you claim these credits when filing your income tax, you can get relief now by reducing your federal employment tax deposits. You can also request an advance payment of the credits from the IRS.

Applying for these programs requires good record keeping. If you’re thinking to yourself “I’m not sure where to find the information needed to apply for these programs” you probably need VersaTel Solutions’ Process Management services. We can help you set up processes and procedures that will make running your business smoother. Reach out to us and we’ll tell you how it works.