What employers need to know.
On March 27, 2020 President Trump signed into law the Coronavirus Aid Relief and Economic Security Act (CARES Act). The CARES Act is a stimulus bill featuring over $2 trillion in measures designed to make a significant impact on the economy and bring relief to individuals and businesses impacted by COVID-19 or the Coronavirus pandemic.
While there are many individual and business tax changes to be aware of, following are the provisions employers and payroll personnel need to know:
Payroll Tax Deferrals
The CARES Act is deferring the payment of payroll taxes to help free up employers’ cash flow. Payroll taxes due from the period beginning on the date the CARES Act is signed into law through December 31, 2020 are deferred. Eligible payroll taxes include 100% of the taxes incurred by employers and 50% of the taxes incurred by self-employed individuals. Note that half of the deferred payroll taxes will be due on December 31, 2021 and the second half on December 31, 2022.
Employee Retention Credit on Employment Taxes
To encourage employers to retain employees who cannot work due to the Coronavirus, the CARES Act grants eligible employers a new credit against employment taxes equal to 50% of qualified wages paid to employees who are not working due to the employer’s full or partial closing of their business or a substantial decline in sales. The credit can be claimed on a quarterly basis up to $10,000 in the aggregate (including health benefits) per employee for all quarters. The credit applies to wages paid between March 12, 2020 and January 1, 2021.
Paycheck Protection Program
The CARES Act is helping Coronavirus-impacted small businesses and non-profits with less than 500 employees by providing loans to aid in covering payroll and other business expenses incurred February 15 to June 30 through the Paycheck Protection Program. The loans of up to $10 million are based on a formula tied to payroll costs and can cover employees earning up to $100,000 annually. Loans may be forgiven if applied towards payroll, interest payments on mortgages, rent, and utilities. The amount eligible for forgiveness would be reduced proportionally if the number of employees decreases as well as if there is a 25% or greater reduction in employee compensation.
Expanded Unemployment Assistance
For employees, the self-employed, and independent contractors who become unemployed, partially unemployed, or unable to work as a result of COVID-19, the CARES Act increases unemployment benefits by $600 per week for up to four months. Note that benefits may vary by state. The federal government is incentivizing states to suspend any “waiting week” provisions and will fund an additional 13 weeks of unemployment benefits through December 31, 2020 after the worker’s state unemployment benefits have ended.