FAQ About Payroll Tax Relief
The Paycheck Protection Program isn’t the only option for COVID-19 relief. Learn about the CARES Act provisions including the Employee Retention Tax Credit and Employer Payroll Tax Deferral.
The CARES Act includes several provisions designed to help businesses recover from difficult economic conditions. There has been a lot of attention on the Paycheck Protection Program (PPP) for small businesses and nonprofits financially impacted by COVID-19, but the PPP isn’t the only option for relief. Businesses of any size may be able to get a refundable credit or deferral of the employer portion of payroll taxes due in 2020.
Questions have been pouring in about COVID-19 relief options available for businesses. Let’s explore some common questions about the payroll tax credit and other relief options in the CARES Act.
Q: What is the Employee Retention Credit?
The Employee Retention Credit provides payroll tax credits of up to $5,000 per full-time employee. The credit is 50% of up to $10,000 of each employee’s wages each quarter through Dec. 31, 2020. In order to qualify, you must demonstrate that your business was harmed by the pandemic as the result of a partial or full closure mandated by law or due to a significant loss of revenue compared to the previous year.
Q: What is the Employer Payroll Tax Deferral?
The Employer Payroll Tax Deferral allows businesses to postpone paying the employer share of Social Security taxes on wages earned from March 27, 2020, through Dec. 31, 2020. This deferral applies to most businesses and self-employed individuals — unlike the credit, eligibility is not limited to those impacted by COVID-19.
Q: What is the timeframe for deferring the employer portion of payroll taxes?
The CARES Act allows for a payroll tax deferral period beginning March 27, 2020, and ending Dec. 31, 2020.
Q: When do the deferred amounts of the employer portion of Social Security taxes need to be repaid?
The IRS gives “applicable dates” for the repayment of deferred amounts. To avoid significant failure-to-deposit penalties, 50% of the deferred amount must be repaid on Dec. 31, 2021, and the remaining amount must be repaid on Dec. 31, 2022.
Q: Does receiving a PPP loan affect eligibility for the Employee Retention Credit or Employer Payroll Tax Deferral?
Yes, both programs are affected by PPP loans. If your business received a PPP loan, you may still take advantage of the Employer Payroll Tax Deferral, but only through the date your lender issues a decision to forgive the loan. After the loan is forgiven, you can no longer defer payment on the employer’s share of Social Security payroll taxes. Businesses receiving PPP loans are not eligible for the Employee Retention Credit.
Q: Does being self-employed affect eligibility for these programs?
If you’re self-employed, you may be eligible to defer the payment of 50% of Social Security tax on net earnings from the time period of March 27, 2020, through Dec. 31, 2020. Self-employed individuals are not eligible for the Employee Retention Credit.
Have More Questions?
Federal, state and local tax regulations can change at any time, and it’s important to stay up to date with changes and ensure your payroll program is in line with requirements. An experienced CPA can answer your questions and help you successfully navigate through the rules governing payroll processing.
Amegy Bank customers can access a complete solution for Payroll Services offered through Alliance Payroll Services. Working with a team of professionals helps ensure that your payroll processing is accurate, on time and compliant with regulations.
Please note that neither this financial institution nor any of its affiliates give tax or legal advice. Consult your tax advisor regarding your individual circumstances.
Business Impact Analysis
It’s important to have a complete understanding of the risks and potential hazards to your business so you can plan for the resources needed for recovery. Identify disaster scenarios and the level of risk to your business operations, as well as the time-sensitive and critical business functions that could be impacted in different situations. Conduct a risk assessment of severe weather disasters and other circumstances that can negatively impact your operations. Helpful resources:
Identify the resources needed to restore normal business operations, which may come from within your organization or third parties. Your recovery strategies should address resources including managers and staff, office space and facilities, technology, machinery and equipment, inventory and materials, utilities and third-party resources. Your recovery strategies may include remote working solutions, relocation plans, shifting to curbside or home delivery options and other workarounds. Helpful resources:
Develop Your Plan
Develop a framework for your business continuity plan and document your recovery strategies and emergency procedures. Organize recovery teams and establish key roles related to workflow and decision-making. You may also want to draft a communications plan for sharing key information with employees, suppliers, key customers, emergency agencies and the media in the event of a disaster. Helpful resources:
Training and Testing
Conduct training for your recovery teams so they are prepared to take action during stressful situations. Training and testing can help clarify roles and responsibilities and evaluate the effectiveness of various aspects of your business continuity plan. For example, you could run through communication plans and procedures during a power outage. If your recovery plan involves relocation, you could test the viability of reconfiguring equipment in an alternate space. After a crisis is over, have discussions with managers and employees about what worked well and identify areas for improvement. Helpful resources:
Managing Your Business Finances
At Amegy Bank, we can help you prepare for the unexpected. A digital approach to treasury management services can help ensure continuity and access to your financial accounts. You can count on us for the financial services you need to keep your business running during challenging times.