Paycheck Protection Program Alternatives Q&A
In response to the COVID-19 pandemic, the federal government enacted legislation to help businesses pay their employees during the economic downturn. The Paycheck Protection Program (PPP) was established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The popularity of the initial program led to the second round of loan funding. The program came to a close when, on August 8, 2020, the Small Business Administration stopped accepting PPP applications. However, the PPP was not a business’s only option. Below is a Q&A exploring other opportunities and tax credits for businesses that did not receive or qualify for a PPP loan.
Q: What is the Employee Retention Credit, and how can it help my business?
A: The Employee Retention Credit (ERC) is a refundable tax credit against the employer’s share of certain employment taxes. The amount of the credit is equal to 50% of the qualified wages an employer pays to employees between March 12, 2020, and January 1, 2021. It can help your business increase its cash flow by reducing taxes. To be eligible, your business or tax-exempt organization must have operated during 2020 and either experienced a partial or full business suspension due to government orders or experienced a significant decline in gross receipts.
Q: What about Qualified Sick and Family Leave? I may have a lot of employees who need to take leave due to COVID-19.
A: The Families First Coronavirus Response Act addresses this issue. Qualified sick and family leave wages are paid to employees unable to work, either in the office or from home, due to their own health needs or the needs of a family member, or if they need to take care of a child whose school is closed due to COVID-19. Businesses can receive refundable tax credits to offset the cost of providing their employees with paid leave related to the pandemic. The credit, which is a dollar-for-dollar reduction to the employer’s portion of Social Security taxes, covers 100 percent of qualified sick leave wages for up to ten days, and up to ten weeks of eligible family leave wages.
Q: Can I take advantage of both of these tax credits?
A: Yes, but you cannot “double-up,” meaning that wages counted for emergency sick leave tax credits cannot be included in wages for the ERC.
Q: Is there anything else I can do to help increase my cash flow?
A: Yes. One provision of the CARES Act allows employers to defer the employer contribution of Federal Insurance Contributions Act (FICA) taxes. This can help your business capitalize on the two tax credits mentioned above more quickly by reducing your federal employment tax deposits and keeping more money in your business. To be clear, though, this is only a deferral – you will be required to repay the deferred tax, starting by the end of 2021.
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Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
The above represents our best understanding and interpretation of the material covered as of the date of this post. The content should not be construed as accounting, tax, or financial advice.