Own a Small Business? You Need to Know About These Coronavirus Tax Credits

If you own a small business, the Great Lockdown has probably been difficult. Whether you've been forced to shut down or have been able to stay open (despite the risk) as an essential business, these are turbulent economic times, and your company is probably feeling some adverse financial effects.

But there is help for business owners, some of it in the form of tax credits. In particular, the IRS has highlighted new credits for employers including the employee retention credit and credits for paid sick leave and family leave.

Taking advantage of these credits could save your company money while enabling you to better protect your employees. Here's how they work.

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The employee retention credit

The employee retention credit is a refundable tax credit available to employers who have seen their gross receipts decline compared with last year or who had to fully or party shut down because of government orders. The credit is worth up to 50% of as much as $10,000 in qualified wages (including health plan expenses) paid to employees between March 13 and Dec. 31 this year.

Because of the $10,000 wage cap, the maximum value of the credit is $5,000 per employee. 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.

The new credits for paid sick leave and family leave

Coronavirus relief provided new options for paid sick leave for people who get the coronavirus, who must care for someone with the coronavirus, or who have to care for children because their day care or schools have closed. Employers who pay out required sick leave or family leave can receive a credit for the full amount paid out.

Employees are eligible for paid leave under the following circumstances:

  • 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 day care 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.

Employers can claim a credit for the full amount they pay out for this leave, as well as any health plan expenses and their share of Medicare taxes. They can apply the credit against their employment tax obligations and reduce their payments to the IRS in anticipation of the credit and/or can request an advance on the credit, in the form of a check.

Take advantage of the tax credits available to you

During these difficult times, the assistance the government provides could make all the difference in keeping your company operating and keeping key staff members on the payroll.

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