Federal tax return and payment deadline extensions
The Treasury Department and Internal Revenue Service (IRS) has extended filing and payment deadlines for both individuals and certain businesses from April 15, 2020 to July 15, 2020 — effective automatically without late filing penalties or having to submit an extension request.
Select businesses with a tax return or payment due April 15 may also be eligible for the new deadline, including C corporations, unincorporated business entities, trusts and estates.
3 CARES Act tax relief options for businesses
Through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there are a number of temporary relief programs — including Economic Injury Disaster Loans (EIDL) and the Paycheck Protection Program (PPP) — that provide financial assistance to workers and small businesses affected by COVID-19.
Businesses seeking additional support may also be able to take advantage of several tax relief options offered under the CARES Act. Here are some of the available tax relief options:
Social Security tax payments deferral
While almost all employers may be required to withhold certain employment taxes from employee wages, the CARES Act gives employers and self-employed individuals the option to postpone paying Social Security taxes, regardless of whether or not the business has been impacted by COVID-19 (with certain stipulations for businesses that have received PPP loans).
Under Section 2302 of the CARES Act, employers can defer the 6.2% employer portion of Social Security taxes that they would otherwise pay between March 27 and December 31, 2020. According to the IRS, any postponed 2020 tax payments need to be paid by the following dates to avoid penalty:
- December 31, 2021: half of the deferred amount
- December 31, 2022: the remaining amount
Employee retention credit
The Treasury Department and the IRS launched the Employee Retention Credit under the CARES Act as a way to encourage employers to keep employees on the payroll — even if the employee isn’t currently working because of COVID-19-related restrictions or a decrease in business activity.
The refundable credit can help companies pay employee salaries and other associated employee costs including health insurance coverage, with a goal of helping businesses avoid alternative cost-saving measures like furloughs and layoffs.
The amount of the credit is capped at 50% of qualifying employee wages and costs up to $5,000 for a single full-time employee, which means that the most you can claim per employee is $10,000. Only wages paid between March 12, 2020 and January 1, 2021 are eligible to qualify for the credit.
The Employee Retention Credit is generally available to most businesses impacted by the coronavirus, including tax-exempt organizations and regardless of company size.
The wages you qualify for are based on the average number of employees on your team in 2019, decline in gross receipts and other COVID-19-related restriction factors. Please see the full text of the credit for details.
Eligible employers can report their total qualified employee wages and costs for each quarter on their quarterly employment tax returns or on Form 941 beginning with the second quarter. You can also request an advance of the Employee Retention Credit by submitting Form 7200.
Families First Coronavirus Response Act
Announced by the IRS and the U.S. Department of Labor, the Families First Coronavirus Response Act (FFCRA) requires U.S. businesses with less than 500 employees to offer paid leave to any employee who needs to tend to their own health or act as caregivers as a result of COVID-19:
- Up to 80 hours at full pay (maximum of $511 per day up to $5,110 total) for any employee unable to work or experiencing illness
- Up to 80 hours at two-thirds pay (maximum of $200 per day up to $2,000 total) for any employee caring for a family member
- Up to 10 weeks at full pay (maximum of $200 per day up to $10,000) for any employee missing work to care for a child out of school
Under the FFCRA, employers should provide the paid leave from April 1, 2020 to December 31, 2020. Offering paid leave can take a heavy toll on business, especially for companies already battling low or declining revenue. Under the Act, employers can also receive a refundable tax credit equal to the amount of required paid sick or family leave costs, which may also include the employer cost for Medicare taxes and health insurance for the affected employee.
Certain businesses may be exempt from providing paid- and family-leave benefits if doing so would jeopardize the business (including companies with fewer than 50 employees, for example.)
Net operating loss revisions
A business with a net operating loss (NOL) may report losses on its tax return that exceed its income. In other words, a business with a NOL is losing more money than it’s making. As a way to help manage fluctuations in revenue and tax responsibilities, businesses may have the option to carry that amount to previous or future tax year, and apply it to taxable income to receive an immediate tax rebate.
Under the CARES Act, your business can carry a NOL from 2018-2020 to the previous five tax years.
Exploring tax break options for your business
It’s important to consider how your company might benefit from various tax relief options to not only help your company survive, but position it for a strong recovery whenever business picks back up.
Navigating financial difficulties during this time can be a challenge for many business owners, but taking advantage of the available relief options can help you and your employees pull through this crisis together.