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The highlights
- Expanded Family and Medical Leave Act benefits for employees who are unable to work due to COVID-19
- Forgivable loans and tax credits for business that keep their employees for the duration of the crisis
- Deferment of an employer’s 6.2% share of Social Security taxes based on employee wages
- Expanded write-offs for improving property for retailers, restaurants, and hotels
- Expanding unemployment benefits for small business owners, self-employed individuals and gig workers
- Option to carry back net operating losses to offset taxable income in prior years
- Extension of time to file and pay 2019 taxes
Here’s a breakdown of the relief measures that might apply to you.
Expanded Family and Medical Leave Act benefits
The federal government expanded Family and Medical Leave Act (FMLA) benefits to employees who are unable to work due to the COVID-19 crisis.
- Employees sick or quarantined due to COVID-19 can receive up to two weeks (80 hours) of paid leave at 100% of their salary. The employer will receive a payroll tax credit for that paid leave, up to $511 per day, for a total of 10 days.
- Employees caregiving for someone impacted by COVID-19 can receive up to two weeks (80 hours) of paid leave. The employer must pay the employee two-thirds of the person’s regular pay. The employer will receive a payroll tax credit for two-thirds of the employee’s wages, up to $200 per day for a total of 10 days. Employees who have worked for the employer for at least 30 days may also receive an additional 10 weeks of paid leave if they’re unable to work because their child’s school or child care provider is closed or unavailable.
The payroll tax credit can be claimed quarterly. For self-employed people, there will be a tax credit equal to the sick leave amount.
This applies to businesses with less than 500 employees. However, small businesses with fewer than 50 employees may qualify for an exemption if leave requirements would jeopardize the business.
You can learn more about the expanded paid leave rules in the Department of Labor’s Fact Sheet for Employers.
Incentives for maintaining payroll
Businesses will get a tax credit for keeping idle workers on their payrolls during the coronavirus pandemic. The tax credit will be worth half of what the company spent on wages, up to $5,000 per worker.
To qualify, the business must prove they took a 50 percent loss compared to the same quarter in years past. However, employers won’t be able to get special SBA loans if they accept this tax credit.
Social Security tax break
Employers get to defer the 6.2% tax that is used to fund Social Security. Employers still need to collect the worker’s share of Social Security and Medicare taxes and pass them on to the IRS. The employer’s share of Medicare tax would still be due as usual.
Employers have to pay the deferred Social Security tax over the following two years: half by December 31, 2021, and the other half by December 31, 2022.
Qualified improvement property
Retailers, restaurants, and hotels will be able to immediately deduct from their taxes what they spend on property improvements. They were supposed to get the write-off as part of the Tax Cuts and Jobs Act (TCJA), but a glitch in the way the TCJA was worded made it unavailable to them.
The fix will help by letting businesses file amended returns for the 2018 and 2019, giving them an immediate tax refund. This tax benefit will last for at least three more years before gradually being phased out.
Distilleries
Many distilleries have been hit hard by the shutdown of bars and restaurants. Some have been using their facilities to produce hand sanitizer.
One hurdle these distilleries face is, if the sanitizer is made with alcohol meant for human consumption, the producers must pay a federal excise tax. The relief bill includes a temporary exemption from excise taxes on alcohol used to make hand sanitizer, as long as it’s produced and distributed within FDA guidelines.
Unemployment benefits for independent contractors and self-employed people
The rescue plan significantly expanded unemployment by giving jobless workers an extra $600 a week for four months on top of their state benefits and extending benefits by 13 weeks. Currently, state unemployment checks last up to between 12 weeks and 28 weeks, depending on the state.
This includes self-employed people, independent contractors, and gig workers, who typically don’t qualify for traditional unemployment benefits.
To apply for unemployment benefits, visit your state’s unemployment website.
The Paycheck Protection Program
The CARES Act establishes a $350 billion loan program for small businesses that keep their businesses running and payrolls steady through the crisis. If the employer continues to pay its workers for the duration of the crisis, these loans will be forgiven. The company would only have to pay back the interest accrued.
But you don’t need to have employees in order to qualify.
The program is available to:
- Small businesses with 500 or fewer employees or fall within the SBA’s size standards
- Restaurant, hotel, or business that falls within the North American Industry Classification System (NAICS) code 72, “Accommodation and Food Services,” and each location has 500 or fewer employees
- Tribal businesses
- 501©(19) veteran organizations
- 501©(3) nonprofits
- Independently owned franchises with less than 500 employees
- Sole proprietors, independent contractors, gig economy workers, and self-employed individuals
The loans will be administered by banks and other lenders, so check with your bank or credit union to see what they’re offering. The American Banking Association is also keeping a running list of programs being made available by banks around the country.
Businesses can receive loans up to $10 million, based on how much the company paid its employees between January 1 and February 29. The loans will carry an interest rate of up to 4%. The bill also provides for an expedited origination process.
Further reading: The Paycheck Protection Program (A Simple Guide)
Relaxed net operating loss rules
When a company’s tax deductions are greater than its taxable income, the result is a Net Operation Loss (NOL). A business can generally use an NOL to lower its taxable income in another tax year.
Prior to the TCJA, businesses could use an NOL by amending their tax returns for up to two years prior. Or, instead of carrying the loss back, a business could apply an NOL on up to 20 future tax returns.
The TCJA ended the option to carry NOLs back two years and added a rule that allows limiting the amount of taxable income that could be offset by an NOL.
The relief bill loosens some of these limitations by allowing taxpayers to carry net operating losses from 2018, 2019, and 2020 back five years. It also removed the limit on any carryovers from 2018 and 2019 tax returns.
Extension of time to file and pay 2019 taxes
The April 15 deadline for filing 2019 federal income tax returns has been pushed back 90 days, to July 15, 2020. That’s also the new deadline to pay federal tax payments that would usually have been due on April 15, 2020. This includes any balance of federal income tax, self-employment tax owing for 2019 returns. Taxpayers don’t have to file an extension by April 15, 2020, to take advantage of the extra time.
If you need more time than that, you can request an extension. This gives you until October 15th to file a return. You’ll still have to pay any amount you owe by July 15, 2020. Otherwise, you’ll owe late payment penalties and interest.
That extension applies only to income and self-employment taxes. It doesn’t extend the due dates for any other type of federal tax, such as payroll or excise taxes.
If you owe back taxes, the IRS announced they will limit collection activities during the COVID-19 crisis.
Other COVID-19 resources
- The Paycheck Protection Program and Health Care Enhancement Act: What You Need to Know
- The PPP and EIDL Are Closed. Now What?
- Unemployment Benefits and the CARES Act
- Six Steps to Take If COVID-19 Shuts Down Your Business
- Leading a Small Business Through a Recession: Five Best Practices
- How to Get an SBA Disaster Loan (COVID-19)
- Paycheck Protection Program: A Simple Guide
- How to Calculate Your PPP Loan Amount
- The CARES Act: A Simple Summary
- Will I Get a Stimulus Check If I Owe Taxes?
