Small Business Tax Reduction Programs will be phased down in December 2020.

What you’ll discover:

Employee Retention Credits Employer Payroll Tax Deferral Employer Credits for Paid Sick and Family Leave Plan Now for 2021

Small company owners affected by the COVID-19 outbreak may be eligible for a number of tax breaks. These initiatives provide financial assistance, which may be immediate in certain situations, to help businesses weather the continuing COVID-19 storm. These tax breaks, however, are only available for a limited time. Several of these programs are due to expire on December 31, 2020, unless Congress acts. Knowing program expiry dates is critical for proactive 2021 planning. These are the key tax relief programs for small companies that are set to expire in December.

Deferral of Employer Payroll Tax

Businesses may use the payroll tax deferral option, which is part of the Coronavirus Assistance, Relief, and Economic Security Act, to retain more money on hand right now (CARES Act). There has been a lot of focus on the employee-side payroll tax deferral option, but your company may also want to examine the employer-side deferral.

Businesses participating in this program may postpone payment of the 6.2% employer component of Social Security FICA taxes. The sole criteria is that the company show a financial effect from the COVID-19 epidemic. This is not a tax credit, to be clear. Companies that use this option may postpone making these tax payments on payroll tax deposits due between March 27, 2020 and December 31, 2020. Half of the deferred taxes must be paid by December 31, 2021, with the remaining amount payable by the end of 2022.

Employer Reimbursement for Paid Sick and Family Leave

The CARES Act also includes a provision mandating some firms to offer up to 80 hours of paid sick leave to workers who were quarantined or recovering from COVID-19. Employers may claim a dollar-for-dollar credit at the employee’s normal rate of up to $511 every day (a total of $5,110).

Workers who need time off from work to care for a kid whose school or daycare is closed due to COVID-19, or for another family member who has been quarantined or self-quarantined due to COVID-19, are also entitled to paid time off under the CARES Act. Companies may claim a credit equal to two-thirds of the employee’s usual earnings, up to $200 each day (a total of $2,000) for up to 80 hours.

An employer credit is also available for firms whose workers were required to take up to ten weeks of paid family leave to care for a kid whose school or place of care was closed due to COVID-19. Employers may claim two-thirds of an employee’s usual salary, up to $200 per day (a total of $10,000), under the Paid Family Leave Credit.

Employers may also claim credits for eligible health plan expenditures paid as well as the employer’s contribution of Medicare taxes for these salaries in all three of these scenarios. But, you must act quickly since these credits are only available for wages earned and sick time or sick leave used between April 1, 2020 and December 31, 2020.

Employee Retention Bonuses

Several firms are eligible for tax breaks in the form of employee retention credits. These credits, intended to encourage firms to retain employees on the payroll rather than furlough or downsize them, are available to enterprises that can show that gross revenues for a particular quarter in 2020 were less than half of gross receipts for a corresponding quarter in 2019.

For wages earned between March 13, 2020 and December 31, 2020, the credit is equivalent to 50% of up to $10,000 in pay (including certain perks) per employee. The IRS website has further information on qualifying for and claiming this credit.

Plan for 2021 now.

These are just a few of the tax breaks accessible to small companies. Loan forgiveness schemes, state-specific and federal tax techniques including loss deductibility, NOL carrybacks, and other financial relief options are also available. The timing and dates for these possible relief options differ. When in doubt, consult with your accounting professional or a lawyer.