Jun 01, 2020
By Mike Mesch, CPA/ABV, ASA, CFF Partner at Terry Lockridge & Dunn
For those of you who have been able to continue to pay employees during the pandemic and who have not accepted PPP loans, there are still programs available to help you!
Employee Retention Credit
This credit reduces payroll taxes for certain employers affected by the pandemic by allowing a credit of up to $5,000 against payroll taxes for each employee paid $10,000 or more in 2020. The credit is allowed for wages paid during quarters in which your business was mandated to be closed during the quarter and/or your business experienced a 50% reduction in gross revenues for the quarter when compared to the same quarter in 2019. Once this “measuring stick” reaches 80% or more of prior year revenue, then that is the last quarter for which you would qualify for this credit.
The credit is taken on the 2020 2nd quarter (or later) Forms 941 and Forms 7200, so contact your tax advisor to see if you qualify.
Family/Sick Leave Credits
Employers who pay family or sick leave may be eligible for a tax credit against payroll taxes.
Family Leave Credit
This credit is equal to 100% of “qualified family medical leave wages” that are paid by an employer for each calendar quarter from April 1, 2020 through December 31, 2020 capped at $200/day per employee or $10,000 in the aggregate. This credit can also be used by self-employed individuals and is based on self-employment income amounts during the quarter.
Sick Leave Credit
This credit is equal to 100% of “qualified paid sick leave wages” that are paid by an employer for each calendar quarter from April 1, 2020 through December 31, 2020 capped at $511/day per employee or $5,110 in the aggregate OR $200/day per employee or $2,000 in the aggregate. This credit can also be used by self-employed individuals.
In order to claim these credits employers are advised to retain appropriate documentation in your records. This would include actual documentation of wages paid as well as documentation of the employee’s need for paid leave time. The credits can be claimed on IRS Form 7200 when filing 2nd quarter (or later) 2020 payroll tax reports.
If you have any questions about these credits or other COVID-19 tax legislation, please reach out to the accountants at Terry Lockridge & Dunn.They can be reach in Cedar Rapids at 319-364-2945 or in Iowa City at 319-339-4884.