Coronavirus Tax Rules

 

Links

 

 

Choices

There are choices how to treat an employee during the pandemic:

  1. EIDL: Economic Injury Disaster Loan (CARES) (by SBA) -- PROGRAM STOPPED!

    • loan up to $25,000 unsecured, and up to $2M secured; advance payent amount: $10,000 is forgivable if the proceeds are spent on payroll
    • assume max. $1,000 per employee
    • no personal guarantee required for amounts less than $200K
    • max. interest: 4%, max. 30 years; defer first payment for up to one year
    • SBA loan forgiveness not taxable as discharge of debt on 2020 tax return

  2. PPP: Paycheck Protection Program forgivable stimulus loan (CARES) (by SBA)

    • loan forgiveness: if all employees are kept on the payroll for 8 weeks
    • money used for: 75% for payroll, rent, mortage interest, utilities
    • same payroll level in 2020 as in 2019
    • no personal guarantee required
    • loan amount: 2.5 time monthly employee payroll
    • interest: 1%, maturity: 2 years; no payment in first 6 months
    • could have gottten both PPP and EIDL loans for different expenses
    • SBA loan forgiveness not taxable as discharge of debt on 2020 tax return

  3. ERC: Employee Retention Credit (CARES)

    • gross receipts must be below 50% of 2019
    • 50% refundable tax credit; wages plus 6.2% SS but NOT Medicare, plus Employer Paid Health Insurance Premiums
    • overall limit of $10,000 on qualified wages per employee, paid between March 13 and end of 2020
    • employer immediately reimbursed for credit by reducing payroll tax deposits (forms 941, advance: 7200)
    • INELIGIBLE if taken PPP loan!
    • open question: precise definition of an average employee

  4. SICK: Payroll Credits for Sick Leave (FFCRA)

    • max 80 hours per employee sick leave, paid between April 1 and end of 2020
    • not subject to 6.2% of employer's share of SS
    • Employer not subject to 6.2% Social Security tax for sick leave wages
    • employer reimbursed for credit by reducing payroll tax deposits (forms 941, advance: 7200)

  5. CHILD CARE: Payroll Credits for Child Care (FFCRA) (FMLA expansion)

    • paid child care leave when schools are closed: 2/3 wages for 12 weeks max.
    • Leave will be unpaid for the first 10 days
    • paid between April 1 and end of 2020
    • employer reimbursed for credit by reducing payroll tax deposits (forms 941, advance: 7200)

  6. DEFERRAL: Employer Payroll Social Security Tax Deferral (CARES)

    • 6.2% employer part of SS; includes self-employed 50% of SS, paid between March 27 and end of 2020
    • employer defers payment until December 2020; 50% due end of 2021, second 50% due end of 2022
    • INELIGIBLE if debt forgiveness (EIDL) for loans under SBA!
    • INELIGIBLE if taken PPP loan!

  7. UNEMPLOYMENT: Expanded Unemployment Benefit (CARES)

    • 50% of wages
    • additional $600/week until July 31 (max 13 weeks)

 

 

Example:

A company with one employee earning $50k anually (= $961 weekly) on May 1st

  1. EIDL: forgivable advance payment --> $1,000
  2. PPP loan forgiveness: 2.5 * $50k/12 --> $10,417 ... plus 6.2% of $50k - $3,100/12 = $258 *2.5 = 646, total --> $11,063
  3. ERC: wages capped at $10,000/12 = $833 monthly, credit 50% = $417 monthly, from April to December --> $3,750
  4. SICK: 80 hours = 2 weeks ( $961*2 ) --> total $1,922
  5. CHILD CARE: FLMA childcare leave: 2/3 wages ( $961*2/3 = $641) for 12 weeks --> total $7,692
  6. DEFERRAL: 6.2% of $50k, from April to December = ---> defer, but still owed $2,325
  7. UNEMPLOYMENT: 1/2 wages ( $961/2 = $481) plus $600 for 13 weeks --> total $14,050

 

 

Other Tax Provisions for Tax Year 2020:

 

Wolfgang Barwig, EA