COVID-19 Federal Tax Relief for Small Businesses

By Drake Forester

Full article from SCORE here.

The federal government has introduced several forms of tax relief for small businesses in the 2020 calendar year. Most of these temporary changes stem from the Families First Coronavirus Response Act (FFCRA) and the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), which jointly serve to help employers and employees survive the ongoing COVID-19 economic crisis.

These changes include a payroll tax deferral, three new business tax credits, and new federal tax filing and payment deadlines—options covered in detail below.

Paid Leave Tax Credits (the FFCRA)

As most employers already know, the FFCRA requires most small and midsize employers to provide limited paid leave for employees who can’t work due to the COVID-19 pandemic. Less well-known, perhaps, is that the Act also includes dollar-for-dollar tax credits available the businesses required to comply.

Employer Eligibility

The FFCRA’s requirements and tax credits apply to most businesses with fewer than 500 employees. Small businesses with fewer than 50 employees, however, are eligible for an exemption from the childcare portion of the Act’s requirements (described below) if the expense would pose a demonstrable threat to the business’s ability to stay viable.

Credits for Required Paid Leave

The Act provides affected businesses with a 100% credit per employee for up to 10 days of paid sick leave related to COVID-19. If the employee is quarantined, has the virus, or shows symptoms of having the virus and is actively seeking a diagnosis, the business pays the employee’s regular wages for up to two weeks (80 hours) of paid sick leave. The tax credit reimburses this expense in full for up to $511 a day (up to $5,110 if the employee takes the full 10 days).

If the employee takes leave to care for someone else under similar COVID-19 related circumstances (quarantine, childcare in light of school closures, etc.), the tax credit covers two-thirds of the employee’s regular pay for up to 10 days (capped at $200 a day or $2,000 for the full 10 days).

An additional credit for child care is also available at two-thirds of the employee’s regular rate of pay (and beyond the two weeks of sick leave mentioned above). This credit applies to up to 10 weeks of additional leave taken under qualifying circumstances, and it caps at $200 a day or $10,000 if the employee takes leave for the full 10 weeks.