Recent legislation like the Families First Coronavirus Response Act and the Coronavirus, Aid, Relief, and Economic Security (CARES) Act have been signed into action to encourage business owners to maintain their staff and keep paying wages through tough economic times. As a small business owner, here’s what you need to know:
Payroll tax credit
Payroll credit for required paid family leave
The Emergency Family and Medical Leave Expansion Act (EFMLEA) requires employers with fewer than 500 employees to give leave to employees who need to take care of a family member experiencing Coronavirus symptoms or take care of a child whose school or childcare center is closed due to the virus. Larger companies are also encouraged to provide paid leave, but it is not required. There are exceptions to the EFMLEA requirements for businesses with fewer than 50 employees if providing leave would jeopardize the business’ ability to continue to function.
The credit goes into effect on April 1st, 2020 and remains in effect until December 31st, 2020 unless otherwise extended. In family leave circumstances, the credit is the equivalent of the paid wages up to $200 a day for up to ten days per employee. For example, if an employee who typically works eight hours a day making $35 an hour ($280 a day) is on family related leave for ten days, the employer will receive a tax credit for $2,000 ($200 x 10 days).
Payroll credit for required paid sick leave
Similar regulations apply if an employee is sick. If an employee is experiencing coronavirus symptoms or is quarantined, EFMLEA requires employers with fewer than 500 employees to give paid sick leave. Again, exceptions apply for businesses with fewer than 50 employees.
In the case of employee illness or quarantine, the credit limit is $511 per day for a maximum of ten days. Using the same example as above, if an employee making $280 a day is on sick leave for ten days, the employer would receive a payroll tax credit of the entire $2,800 paid.
Credit for the self-employed
A self-employed individual may also qualify for paid leave and the corresponding tax credit if he or she regularly carries on a trade or business that the leave interrupts.
These credits are applied against Federal payroll tax. In effect, this reimburses employers for most if not all the paid leave they are required to give. This is a refundable tax credit so if your total credit is larger than the payroll tax owed, you can get a refund for the excess amount. The credit is not taken into account when calculating the payroll tax deduction and may not be taken with any other medical leave credit on the same wages. This prevents employers from getting the same benefit twice.
Small business loan
One section of the stimulus plan, known as the Paycheck Protection Program, allows for companies with fewer than 500 employees to get a loan to avoid layoffs, rehire any previously laid off employees, and maintain payroll. Employers can request a loan of an amount equivalent to 2.5-times monthly payroll costs up to $10 million. Payroll costs are capped at $100,000 per employee per year. No collateral is necessary to receive this loan. If the business meets requirements, any portion of the loan used to pay eligible expenses such as wages, rent, mortgage, or outstanding debt may be forgiven if used within eight weeks of receiving the loan.
In order to have your loan forgiven, you must keep staff through at least June 30th, 2020, use at least 75% of the loan to pay for payroll expenses, and not decrease the salary of any full-time employee making under $100,000 by more than 25%. If these requirements are not met, the loan may be partially forgiven. As for unforgiven debt, no payments are required for the first six months and the loan must be paid back within two years.
In the case that you have laid employees off after February 15th, or lowered salaries more than 25%, you may still be eligible to have your loan forgiven if you rehire employees before receiving the loan money.
You can request the loan at a bank or other lender. The S.B.A has a search tool to find a lender near you. All applications must be turned in by June 30th.
If you are a small business owner, take advantage of the payroll tax credits as needed. If your business is suffering due to Coronavirus, keep in mind that there are relief programs. Consider your options and decide what is right for you and your business.