Understanding The CARES Act Refundable Payroll Tax Credit
On March 27th, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed Congress and was signed into law by President Trump. This economic stimulus package was designed to provide financial stability and relief to individuals and businesses affected by the COVID-19 virus. In addition to cash recovery payments issued to American taxpayers, the CARES Act also provides a refundable payroll tax credit on certain wages paid during the pandemic.
Designed to get businesses back on their feet as soon as possible, the CARES Act offers several tax breaks to qualifying businesses. While most of the tax breaks are only temporary, they offer significant relief for businesses impacted by this global crisis.
Although different businesses may qualify for additional tax breaks under the new law, the CARES Act refundable payroll tax credit provides much needed relief for employers that continue paying employee wages throughout the pandemic. Section 2301 of the CARES Act provides a refundable payroll tax credit for 50% of wages up to $10,000 paid to certain employees between March 13 and December 31, 2020. Employers can combine this tax break with Section 2302 to defer the deposit of certain employment taxes for up to two years.
Determining Eligibility for the Refundable Payroll Tax Credit
In order to qualify for the refundable payroll tax credit, employers must own a business or non-profit organization whose operations were negatively impacted by COVID-19. Even if operations were not fully suspended, the business may still be eligible for the refundable tax credit if they can prove that their gross receipts totaled less than 50% of their gross receipts for the same quarter in 2019. It’s important to note that employers that received a Small Business Administration (SBA) Loan under the Paycheck Protection Program of the CARES Act do not qualify for the refundable payroll tax credit. Government employers and self-employed individuals also do not quality.
When determining eligibility, employers need to look at both cash payments used for FICA taxes as well money paid towards employer-provided healthcare benefits. However, wages cannot exceed the normal pay the employee received during the 30 days prior to the start of pandemic. This means any increase in wage received after March 12, 2020 does not qualify. Another exclusion, employers cannot collect the refundable tax credit on federally mandated sick or child care leave paid under the Families First Coronavirus Response Act (FFCRA).
Partially Suspended Operations
Under the CARES Act, a business is considered “partially suspended” if any government authority imposes restrictions that limit commerce, travel, or group meetings in order to slow the spread of COVID-19. For example, restaurants restricted to carry out or delivery only and other businesses that cannot continue normal operations due to rules and regulations imposed in response to the COVID-19 pandemic.
Toal, Murray, Day & Lalor, LLC provides a variety of tax and payroll services to businesses of all shapes and sizes. During these times, TMDL has been helping businesses determine their eligibility for tax credits available through the CARES Act. Please contact us for more information.