By Pooja Srivastava and Kislay Banka
As many businesses must adapt to the disruptions caused by the coronavirus (COVID-19) pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act creates two different employment tax credits that can offer significant relief for certain employers:
- The Employment Retention Credit (ERC) provides a refundable payroll tax credit for certain wages paid to employees from March 13 to December 31, 2020.
- Payroll tax credits are equal to 50% of “qualified wages” paid to an employee each quarter, up to $5,000 per employee (capped at a total of $10,000 per employee).
- With payroll tax deferral, employers can delay payment of social security and Railroad Retirement Tax Act (RRTA) taxes that are due from May 27 – December 31, 2020 for up to two years without penalty or interest charges.
Both tax credits encourage employers to continue paying wages to employees.
Which Wages Qualify for the Employment Retention Credit (ERC)?
Employers qualify for refundable ERC payroll tax credits under CARES if they:
- Pay the qualified sick leave and family leave wages required by CARES
- Cover qualified health plan expenses
Payroll Tax Deferral: Eligibility and Payment Due Dates
The payroll tax deferral is available to employers of any size. However, employers whose Paycheck Protection Program (PPP) SBA loan is forgiven cannot apply for this payroll tax delay.
50% of deferred tax is due by December 31, 2021, with the remaining 50% due December 31, 2022. Payments are considered on time if they are made by the extended due dates.