- Small businesses are now required to pay out and give family or sick leave to employees affected by the pandemic.
- If an employer fails to deposit payroll taxes because he or she is anticipating a tax credit, there will be no penalty.
- Extension of the April 15 Payment Deadline until July 15, 2020.
The ongoing pandemic has weighed in heavily on economies of countries all over the world. The global supply chain and health sectors have suffered the most significant blows. To cushion its citizens, the U.S government has made changes to several tax policies. Amid the coronavirus (COVID-19) threat, the U.S federal state and most local governments have resulted in supporting their economies through the implementation of measures like tax reliefs. Small businesses will also benefit from tax reliefs after the government passed legislation to have several aspects of tax policies changed in favor of the businesses. To the relief of many affected Americans, tax deadlines have also been extended. Below are several covid-19 tax updates that you need to know.
Tax Credit for Covid-19 Related Leave
For small businesses that have less than 500 employees, the family or sick leave has been affected by big changes made by the FFCRA. Small businesses are now required to pay out and give family or sick leave to employees affected by the pandemic. The business will, in turn, receive a tax credit equal to 100% of the amount paid out to employees on sick or family leave. As provided under the CARES Act, the refundable tax credit will be paid out in every quarter. If an employer fails to deposit payroll taxes because he or she is anticipating a tax credit, there will be no penalty.
Employee Retention Tax Credit (ERTC)
The ERTC is one of the most important new tax credits. A drop in sales and income have seen many employers lay off huge numbers of their employees. The ERTC is designed to encourage employers to retain employees even in these difficult times. A business automatically becomes eligible for the tax credit if it experienced a 50% decline in gross receipts compared to those of the previous years. A business can also apply for the ERTC if its operation was partially or fully suspended as a result of coronavirus shut down orders. Businesses eligible for the tax credit can get a 50% refund on wages of up to $10000 per employee.
Expansion on Charitable Gift Deductions
Unlike before, when corporations could only make charitable contributions exceeding 10% of their total taxable income, the limit has been set at 25%. This expansion has been provided under the CARES Act. However, corporations cannot automatically affect the expansion and must be elected.
Allowance to Delay on Payment of Payroll Taxes
Due to the CARES act, self-employed and businesses can now defer on deposits owed for 2020 and social security tax payment. The delayed payroll tax payments can now be paid over the next two years. 50% percent must be paid by the end of 2021 and the remaining half by the end of 2022. It is, however, important to note that businesses receiving a paycheck protection loan program are not eligible to benefit from the tax delays. However, under certain conditions, businesses can benefit from both the PPP loans and the provisions allowing deferred tax payments. The IRS provides that until a business has any loans forgiven, it can continue to benefit from both programs.
Extension of the April 15 Payment Deadline until July 15, 2020
Payment of 2019 taxes, which would normally take place on April 15, has been extended until July 15, 2020. The extension affects even the estimated tax payments of 2020. This would also normally be filed by the self-employed individuals on April 15. It is not until July 15 that penalties will start to accrue on failing to file your tax returns. According to the IRS, these changes apply to this year only.
The IRS has also recently permitted insurance coverage of covid-19 testing by high deductible health insurance covers before any copays or coinsurance are met. If you have a Consumer Choice plan eligible for Health Savings Accounts, you should promptly check with your health insurance provider to see if they can waive the coinsurance and deductible for covid-19 testing.