Among its various benefits and relief to employers, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides employers the ability to delay paying payroll taxes and receive tax credits for retaining employees through this difficult time.
Employer Payroll Tax Delay
Under the CARES Act, Employers and self-employed individuals are allowed to defer paying their portion of the social security payroll tax (6.2%), starting from the date the act is signed into law. This should not be confused with the federal withholding of the regular income tax, an employee’s portion of the social security payroll tax, or the Medicare tax (1.45% each for an employee and her employer).
The social security payroll taxes deferred under the CARES Act will be those that are due from the date of enactment through December 31, 2020. These taxes will not be forgiven and will be paid over two installments: half by December 31, 2021, and the other half by December 31, 2022.
However, there is a caveat. Employers that receive SBA loans to fund their payroll costs and whose loans will be forgiven under the CARES Act will not be eligible for this payroll tax deferral.
Employee Retention Payroll Tax Credit
Tax credits of up to $5,000 per employee will be an additional tax benefit to employers that experience a significant decline in gross receipts or whose business was fully or partially suspended in 2020 due to government orders regarding the coronavirus pandemic. A significant decline in gross receipts is generally established when a business’s gross receipts in a calendar quarter in 2020 are less than 50 percent of the gross receipts of the same calendar quarter in 2019.
The tax credits will be earned for qualified wages and health benefits paid to employees between March 12, 2020, and December 31, 2020. Any excess credits will be refundable to employers. For the purposes of this credit, qualified wages will be determined depending on the size of the employer. Employers with more than 100 full-time employees will only qualify for wages paid to employees that are not providing services due to the coronavirus pandemic. However, for all employers, the credit amount will be equal to 50% of the qualified wages, where such wages are not more than $10,000 per employee.
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