Small Business Tax Relief in COVID-19 Legislation

There is a lot of panics out there these days related to COVID-19. Businesses and individuals face lots of information related to tax relief and economic assistance from the U.S. Treasury.

Here is a breakdown of the economic relief available to businesses:

1. Paycheck Protection Program

Under this program, there will be cash flow assistance to small businesses with 500 employees or fewer from the Small Business Administration under the form of small loans. The low-interest loans are equivalent to 2.5x average monthly payroll costs or $10 million, whichever is less.

These loans are meant to cover payroll costs, paid sick leave, supply-chain disruptions, employee salaries, health insurance premiums, and mortgage payments. If the employers maintain their payrolls until June, the portion of the loans used for payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven (i.e. the loan becomes a grant).

If there is a reduction in headcount. it will proportionately reduce the amount of loan forgiveness. There is a similar program is available for companies with more than 500 employees through the Federal Reserve.

2. Employee Retention Credits

There will be a refundable credit against payroll taxes that the employer pays ( 6.2% OASDI). The credit amount will be 50% of up to $10,000 in wages paid per employee (maximum credit $5,000 per employee)
This, however, applies to companies affected by COVID-19 shutdowns or a 50% reduction in revenues from the same calendar quarter in the prior year.

3. Delay of Payment of Employer Payroll Taxes

Employers (and self-employed individuals) will be able to defer payment of the 6.2 percent employer-side Social Security payroll tax, effective for wages paid between the date of enactment and December 31, 2020. The payments ultimately would be due in equal parts on December 31, 2021, and December 31, 2022.

4. Net Operating Loss (NOL) Carryback Rules Reinstated and Expanded

NOLs from tax years 2018, 2019, 2020 can be carried back 5 years to claim refunds from taxable years

5. The due date for Federal income tax returns and payments due April 15, 2020, automatically postponed to July 15, 2020.