Important COVID-19 Tax Updates for Businesses
Delay of Payment of Employer Payroll Taxes:
Self-employed individuals and Employers can defer payment of the employer share of social security taxes. Employers are generally responsible for paying 6.2% of social security tax on employee wages. Half of the deferred social security taxes are to be paid by Dec 31, 2021 and the other half is due by Dec 31, 2022.
Employee Retention Credit:
A payroll tax credit is available for 50% of wages paid to employees during the COVID-19 crisis.
Eligibility requirements:
- Employers whose operations were fully or partially suspended due to covid-19 related shutdown order or
- Employers whose gross receipts declined by more than 50% when compared to the same quarter in the prior year
The credit is provided for the first $10,000 of compensation including health benefits. The credit is provided for wages paid or incurred from March 31, 2020 through Dec 31, 2020.
Changes for Net Operating Losses (NOLs)
The provision temporarily removes the 80% taxable income limitation to allow a NOL to fully offset income. The NOL carryback rules allow businesses to carryback certain losses. The temporary rules also permit a NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. This allows companies to utilize losses and amend prior year returns.
Business Interest
The limitation on the deduction for business interest is temporarily and retroactively increased from 30% to 50% of taxable income (with adjustments) for 2019 and 2020.
Small Business Loans
The SBA is providing low interest working capital loans of up to $2 million to small businesses and nonprofits affected by the coronavirus. These loans carry an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by applicant, up to a maximum of 30 years.
Loan Forgiveness
Economic Injury Disaster Loan (EIDL): $10 Billion was allocated to this program
EIDL Eligibility (regular and advance)
- Small business (<500 employees)
- Tribal small businesses
- Sole proprietors
- Independent contractors
- Self-employed persons
- Private nonprofits
- Veteran organization
EIDL Regular Loan
- Up to $2 million per applicant
- Rates of 3.75% small businesses or 2.75% for nonprofits
- Defer to 1 year
- Must repay
EIDL Advance Loan
- Up to $10,000
- Loan can be forgiven
Paycheck Protection Program (PPP): Funds are currently exhausted for this program.
SBA Express Bridge Loan (EBL)
EBL Eligibility
Your business must:
- Have been in operations as of 3/13/20
- Have been adversely impacted by COVID-19
- Have a pre-existing relationship with a lender that offers EBL loans as of 3/13/20
- Have 500 or fewer employees (higher for certain industries)
EBL
- Up to $25,000 per applicant
- With EIDL
- Portion forgivable