COVID-19 had a detrimental impact on several enterprises. As a response, the federal government offered a range of tax credits, loans, and other support to help certain businesses survive these difficult times. Yet, when the economy recovers and companies reopen, many credits and incentives are being phased out or reduced. Here’s what company owners should know.
What you’ll discover:
Which COVID-19 tax credits are expiring Sept. 30?
What steps must firms take to qualify for COVID-19 tax credits?
Can self-employed persons take use of the tax benefits for businesses?
What happens if the company fails to meet the deadline?
Are there any additional COVID-19 relief programs?
Table of Contents
Which COVID-19 tax credits are set to expire on September 30?
The American Rescue Plan Act of 2021 provides certain small and medium-sized firms with tax breaks for giving workers with paid sick and family leave when they are unable to work due to COVID-19. The tax credits are a dollar-for-dollar payment that businesses may utilize to retain workers despite COVID-19 absences.
The tax credits are available only for paid leave taken between April 1, 2021 and September 30, 2021. They are applicable to the employer’s part of Medicare withholding. Since they are completely refundable, the credit will be applied even if it exceeds the Medicare tax.
Employers must take action in order to get the credit. They must file Form 941, Employer’s Quarterly Federal Tax Return, to record their total paid sick and family leave pay. Employers may retain the monies they would have deposited otherwise if they intend to claim the credit. If an employer is short on finances, Form 7200, Advance Payment of Employer Credits Due to COVID-19, may be used to obtain a credit advance.
Employers may also be eligible for the new credit for COBRA premium assistance payments, which will expire on September 30, 2021. This perk covers 100% of the employee’s or employer’s monthly health insurance premiums.
What steps must firms take to qualify for COVID-19 tax credits?
Employers must have less than 500 workers to qualify. The credit is intended to account for leave taken by workers who are unable to work or telework due to COVID-19. It includes the following:
I took time out to be vaccinated against COVID-19.
Leave to recuperate from any vaccination-related disease or ailment.
COVID-19 is being contracted.
Care for family members infected with COVID-19.
Periods of quarantine associated with COVID-19.
Having COVID-19 symptoms and seeking a medical diagnosis or test result.
The leave must have taken place between April 1, 2021 and September 30, 2021.
There are two components to the credit:
Paid sick leave pay — It provides sick leave wages for up to two weeks, with a daily maximum of $511 and a total limit of $5,110. Up to that amount, it covers 100% of the employee’s wage.
Paid family leave earnings —It covers paid family leave wages for up to 12 weeks, with a daily restriction of $200 and a cumulative limit of $12,000, at two-thirds of the employee’s pay rate.
The credit is enhanced for allocable health-care expenditures, some collective-bargaining benefits, and the employer’s portion of Social Security and Medicare taxes paid, but only up to the above-mentioned limitations.
Can self-employed persons take use of the tax benefits for businesses?
In a nutshell, sure. Yet, the advantages varied somewhat.
For credit purposes, a self-employed individual is somebody who consistently engages in any trade or business. They must qualify for the increased paid leave as if they had an employment in order to obtain the credit.
The credit is applied to self-employed individuals’ federal income taxes up to the above-mentioned sick leave or paid family leave limitations. The restriction is calculated based on the “average daily self-employment income” in the current or previous tax year.
A self-employed person may take a maximum of ten days off each year, which may be less than the amount allowed to an employee. In certain circumstances, self-employed persons who simultaneously have employers may be eligible for two levels of credits.
What happens if the company fails to meet the deadline?
The credit is not available for departures after September 30, 2021. Employers may claim the credit, however, when they complete Form 941 for the third quarter (July through September), which is due Oct. 31, 2021. If you sought credits between April and June, you should have submitted your Form 941 by July 31.
Are there any additional COVID-19 relief programs?
The Small Business Administration has compiled a useful list of COVID-19 relief programs, which includes:
Paycheck Security Program.
EIDEL COVID-19 COVID-19 (temporary loss of revenue related to COVID-19).
Grant for Closed Venues.
Fund for Restaurant Revitalization.
Debt relief via the SBA.
