Andika Susanti, AARST-NRPP Finance Manager
Small businesses may claim tax credits that reduce the amount of tax paid to the government. Businesses of all sizes usually file for tax credits and tax deductions as part of their annual tax filing process. This year’s conversation with your tax professional could be especially important. The tax implications of the Coronavirus Aid, Relief and Economic Security (CARES) Act for small business owners, plus the Tax Cuts and Jobs Act, continue to affect how businesses calculate income, the deductions you can take, and more.
Two New Coronavirus Tax Credits
In response to the coronavirus emergency, new tax credits are available to businesses:
- An employee retention credit to give businesses an incentive to keep employees working, and
- Tax credits to help employers pay for sick leave and family leave for employees affected by COVID-19.
You can take these tax credits quickly by deferring payment of your employer part of Social Security taxes withheld from employees on Form 941, the quarterly payroll tax report.
Employee Retention Tax Credit
As part of the 2020 CARES Act, the IRS has created an employee retention tax credit to incentivize employers to keep paying employees. Your business can get a fully refundable tax credit for 50% of qualified wages up to $10,000 paid between March 12, 2020, and before January 1, 2021. The maximum credit amount per employee is $5,000. You can continue to be eligible for the credit while you continue to give health insurance benefits to employees who have been laid off.
Tax Credits for Paying Employees on Sick Leave and Family Leave
The 2020 Families First Coronavirus Response Act (FFCRA) helps employers provide sick leave and family leave to employees.
Paid Sick Time: Small and mid-size employers (those with fewer than 500 employees) must give up to 80 hours of paid sick time to employees for coronavirus-related issues for staying home for their illness or someone who needs care.
Paid Family Leave: Also, employers must give employees paid family leave to care for a child who needs care. This requirement is a part of the Family and Medical Leave Act, which requires larger employers to give unpaid leave to employees.
Employers who have these expenses can get tax credits for part of the cost of providing these payments to employees. They can take the tax credits by deferring the employer’s portion of Social Security benefits on the employees’ wages. The tax credit program ended on December 31, 2020.
The Affordable Care Act includes a small employer health insurance tax credit to encourage small employers to offer health insurance for the first time or maintain coverage they already have.
The credit is available to small businesses that pay at least half the cost of single coverage for their employees. If your business and plan meet the qualifications, you can get a credit of up to 50% of the health insurance premiums you paid for employees, but not for yourself as the business owner. To be eligible for the credit, you must:
- Have fewer than 25 full-time equivalent employees,
- Average wages must be less than $54,200 for the tax year, and
- Pay for these premiums using an IRS-qualified arrangement.
Always consult a professional accountant before filing your taxes. For more information, visit https://www.irs.gov/coronavirus/coronavirus-tax-relief-for-businesses-and-tax-exempt-entities.