Important Updates to CARES Act Tax Credits for Employers
The CARES Act is a massive spending bill, covering more than $2 trillion of relief for nonprofit organizations, businesses and individuals affected by COVID-19. Now, changes are coming to several key provisions. Here’s what you should know.
Employee Retention Credit
The employee retention credit (ERC) under the CARES Act is a business relief measure that encourages businesses to keep employees on their payroll. The refundable tax credit was recently extended and expanded to allow eligible employers (including tax-exempt organizations) to claim a credit of up to 70% of qualified wages paid through December 31, 2021, up to $10,000 per quarter per employee. Previously, the credit allowed for 50% of qualified wages, up to $10,000 per year.
On March 1, 2021, the IRS released guidance about the ERC as it applies to qualified wages paid from March 13, 2020-December 31, 2020. The guidance clarifies the credit and describes retroactive changes but does not address the changes that apply to qualified wages paid after December 31, 2020.
Also, this credit is now available for entities that received Payroll Protection Program funds in 2020 and 2021. The only restriction is that the salaries used for the PPP loan cannot be used for ERC credit.
Sick & Family Leave Credit
The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide paid leave to workers who are unable to work due to circumstances related to COVID-19 (qualified paid leave). It also provides tax credits related to the paid leave mandated by the act.
The paid sick leave credit for each employee is equal to the lesser of the amount of their leave pay or either: (1) $511 per day while the employee is receiving paid sick leave
to care for themselves, up to a total of $5,110 for ten days; or (2) $200 per day, up to a total of $2,000 for 10 days, if the sick leave is to care for a family member or child whose school or place of care is closed. The paid family leave credit for each employee is the amount of his or her leave pay limited to $200 per day with a maximum of $10,000.
- The credit was recently extended to September 30, 2021.
- Credits may be claimed for the employer’s share of social security and Medicare tax on qualified leave wages. The credit is applied against the Medicare portion (only) of payroll taxes of all employees, not just the employees to whom qualifying leave wages are paid.
- The credit has been expanded to include employers who provide paid time off for employees to obtain the COVID-19 vaccination or recover from an illness related to immunization. The credits are also increased by the employer’s qualified health plan expenses and certain collectively bargained benefits.
- The 10-day limitation on the maximum number of days that an employer can claim the paid sick leave has been reset.
- The amount of wages that an employer can claim the paid family leave credit in a year was increased from $10,000 to $12,000.
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