For many companies looking for help with cash flow, the federal coronavirus relief loans have been a popular option.
But also coming out of COVID-19 legislation were two payroll tax credits — the Credit for Sick and Family Leave and the Employee Retention Credit — that eligible employers may want to consider, experts said.
“While they have their limitations, they definitely can help,” said Ken Rick, a partner at Janover LLC, a Garden City-based CPA firm.
The credit with the greatest potential benefit, the Employee Retention Credit, which is aimed at encouraging businesses to keep employees on their payroll, cannot be taken by companies that get a Paycheck Protection Program [PPP] loan, he said.
The credit, which allows employers to offset up to $5,000 per employee against certain federal payroll taxes, isn’t being utilized widely due to the PPP restriction, considering “most smaller businesses that qualify for PPP loans went for that loan," Rick said.
Zachary Rovinsky, director of finance at Farmingdale-based Alcott HR, agreed noting, “the majority of eligible employers applied for the PPP first.”
But that could change as federal funding gets eaten up, said Rick, who expects that more businesses may look to take advantage of the retention credit if they can’t get a PPP loan.
“That would be the silver lining if they didn’t get the loan,” says Rick.
To get an Employee Retention Credit, eligible employers must have operations that have been partially or fully suspended due to governmental orders related to COVID-19, said Jeffrey Cohen, tax practice leader at Grassi & Co. CPAs in Jericho. Companies with a significant decline in gross receipts compared to 2019 — at least a 50% drop from the comparable quarter in 2019, are also eligible, Cohen said.
Once receipts go above 80% for a comparable quarter, companies can no longer claim the credit, he said.
The credit is equal to 50% of up to $10,000 in qualified wages, including health plan expenses, paid after March 12, 2020 and before Jan. 1, 2021, he said.
For companies with fewer than 100 employees, the credit is based on wages paid to all employees, regardless if they worked or not, or were furloughed, Cohen said. For those with 100-plus employees, it would only apply on wages paid to employees who didn’t work that calendar quarter, he said.
For more on this credit see https://tinyurl.com/tvkxbfk.
The credit could be a big help to Jon Fuss of Plainview, owner of Pretzelmaker, a soft pretzel franchise in the Queens Center, where he has a store and three kiosks.
Fuss, a client of Janover, initially got a PPP loan, but is giving the funds back due to the current eight-week timetable tied to loan forgiveness and his current inability to reopen.
He’s been closed since March 15 and has no idea when the mall will open again.
Since he is returning the PPP loan, Fuss said, he will be eligible for the retention credit upon reopening and paying wages and benefits, which could result in close to $95,000 in payroll tax savings with his 19 employees.
“With the amount of debt we’re piling up with not being open, that’s money we desperately need right now,” he said, adding that he hopes he can reopen given his mounting bills.
Separately, firms that have had to pay for sick and family leave for employees could also be eligible for the Credit for Sick and Family Leave if the employee is unable to work due to being under a local quarantine or isolation order related to COVID-19; cares for someone also under such order; or cares for children due to day care or school closures, said Carol Sawyer, tax manager at Melville-based PrestigePEO, which offers payroll, benefits and HR services.
Eligible employers with less than 500 employees are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1 through Dec. 31, 2020, she said. For details see https://tinyurl.com/y8v8mvm6.
Sawyer said more than $180,000 in the tax credits have been processed for her company's NY-metro clients.
Rovinsky has also seen a number of businesses take the family leave credit.
Keep in mind, he said, proper record keeping is key to justify that credit. This includes documentation from a health care official saying the employee is experiencing symptoms or been quarantined and can’t work, Rovinsky said.
While a business can’t take the Employee Retention Credit if it received a Paycheck Protection Program loan, employers who returned their PPP loans by May 14 could still be eligible to receive the credit, said Jeffrey Cohen of Grassi & Co. It’s unclear how many credits have been processed to date. The Internal Revenue Service did not have statistics immediately available.
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