Understanding the New COVID-19 Tax Credits for Small Businesses
The COVID-19 pandemic has put a lot of strain on businesses that need to pay operating expenses without having much income. Since the beginning of March, 72,842 businesses have permanently closed. Fortunately, the government has just announced some relief for those businesses that are struggling.
What Are the New Credits?
The two new COVID-19 tax credits announced by the IRS are the paid sick leave credit and the family leave credit. Cherry Hill, NJ, tax lawyers believe these credits may be very helpful to small businesses. The sick leave credit allows a business to get a credit that covers the employees’ sick leave. It will provide coverage for up to 10 days or 80 hours. The sick leave credit will cover an employee’s regular rate of pay for up to $5,110 in total. Employers can also use the sick leave credit to pay employees who must leave to care for a sick person. The credit for a healthy employee caring for someone else will cover up to 80 hours at 2/3 of the employee’s usual pay rate. It has a maximum limit of $2,000 in total.
Alongside the sick leave credit is the family leave credit. This allows an employer to get a credit for any employee who needs to take a general leave for family matters related to the COVID-19 crisis. The family leave credit will cover employees for a longer period of time, with up to 10 weeks of leave per employee counting toward the credit. Any employee taking family leave is entitled to 2/3 of their usual pay rate, at a maximum of $200 per day or $10,000 altogether.
Who Is Eligible for the Tax Credit?
Employers do not get these credits every time an employee cannot come in for work. Instead, they are only applicable between April 1 and December 31, 2020. To be an eligible employer for the new coronavirus tax credit, you must run a business or tax-exempt organization that has fewer than 500 employees and is mandated by the FFCRA to pay qualified sick leave wages. Furthermore, you can only use this credit when an employee:
- Has COVID-19 symptoms and is trying to get diagnosed
- Is subject to a government quarantine order due to COVID-19
- Has been advised by a health care provider to quarantine due to COVID-19 exposure, symptoms, or high health risks
- Is caring for someone else who has been advised to quarantine by the government or a health care provider due to COVID-19
- Has a child who requires care because their school has closed due to COVID-19
- Has a child who requires care because their health care provider has COVID-19
- Is experiencing any other similar health or family conditions as specified by the Secretary of Health and Human Services
There are many situations that could fall into a gray area. If you are not sure whether these circumstances apply to you, make sure you consult with a New Jersey tax attorney before taking the credit.
When Do You Get the Credit?
Employers can claim these credits when filling out their 2020 federal employment tax returns. However, if you need the funds now, you can go ahead and benefit from the credits by lowering your federal employment tax deposits by the relevant amount. In cases where your federal employment taxes do not cover the credit amount, you can submit an advance payment request to the IRS.
If you are not sure how these new credits will affect your business, consult with a New Jersey tax attorney. At Dopkin Law Firm, you can get all sorts of assistance with preparing tax strategies for the upcoming year. During the pandemic, our firm is still operating remotely, so you can talk to us over the phone or email. Schedule your consultation with a Cherry Hill, NJ, tax lawyer now by giving us a call at 215-519-4269 or filling out our online contact form.