The landmark $2.2 trillion CARES Act passed by Congress was designed to try and help support U.S. businesses and workers during the Coronavirus pandemic. The massive legislation includes an array of financial incentives and loan programs for business owners, including people who own startup businesses. One of these provisions is the Employee Retention Payroll Tax Credit. This credit is designed to help businesses, including startups, retain employees, even in the face of steep declines in revenue or funding as a result of the pandemic.
Overview of the Refundable Tax Credit
The refundable tax credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19, according to Forbes.com.
To be eligible for the refundable tax credit, you must meet the following requirements:
- The business saw operations fully or partially suspended by a government order; or
- Gross receipts fall by more than 50 percent in a quarter measured against the same quarter from 2019.
Calculation
As mentioned, the available tax credit is 50 percent of qualifying wages paid up to $10,000 in total. However, it is important to note that wages your business/startup paid after March 12, 2020, and before January 1, 2021, are the only wage payments that would be eligible for the refundable tax credit. It is also important to note that eligible wages are not limited to cash payments. This means any payments made to help cover your employee’s healthcare expenses would be eligible as well.
Partial Suspension of a Trade or Business
Governors in many states, including California, have issued “shelter-in-place” or “stay-at-home” orders. These orders typically apply to most individuals and business owners. As a result, when the operation of a trade or business is partially or fully suspended due to an appropriate governmental authority imposing a restriction on the business, that business owner would be eligible for the refundable tax credit.
Eligibility
If eligible, business owners may be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit, according to the aforementioned Forbes article.
Eligible employers, including startup owners, will need to report their total qualified wages and the related health insurance expenses for each quarter on their quarterly employment tax returns beginning in Q2. If your employment tax deposits are insufficient to cover the credit, you could potentially receive an advance payment from the Internal Revenue Service by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Speak to an Experienced Startup Attorney in Los Angeles Today
If you are encountering challenges keeping your startup/business afloat during this difficult period in history, we understand and are here to help. If you have questions about your eligibility for Employee Retention Payroll Tax Credit, contact the highly reputable Hakim Law Group today at (310) 993-2203. Our law firm is comprised of professional, trusted, and experienced business attorneys in Los Angeles who can help you get your business on the right track. www.HakimLawGroup.com
