calculator with list of payroll tax withholding amounts

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes dozens of subsections and countless provisions. While it covers an immense range of relief options, the CARES Act tax relief provisions are of particular interest to employers. Designed to help avoid worker layoffs, they’ll play a crucial role in economic recovery from the COVID-19 pandemic.

If you’re an employer impacted by coronavirus, these provisions could give you some much-needed relief. Here are a few CARES Act tax relief measures that are most likely to help.

Employee Retention Credit

Employers in business during 2020 can get a refundable tax credit against Social Security taxes or the Railroad Retirement Tax. To be eligible, an employer must meet one of the following qualifications:

  • Business operations were fully or partially suspended during any quarter of 2020 because of governmental orders that limited commerce, travel or group meetings in response to COVID-19.
  • The business was open but experienced a year-over-year reduction in gross receipts of 50% or more during any quarter in 2020. In this case, the business can get the credit for each quarter until gross receipts for a quarter exceed 80% of the receipts from the same quarter in 2019.

Tax-exempt organizations are eligible, since they would fall under the first bullet. However, it’s not available to federal or state employers.

The credit is equal to 50% of qualified wages up to $10,000 paid per employee (for a maximum annual credit of $5,000 per employee). It’s applicable for wages paid between March 12, 2020 and before Jan. 1, 2021 and computed on a calendar-quarter basis.

This credit includes a caveat to prevent employers from “doubling up” on tax credits. If you’re already using similar credits, the employee retention credit amount you receive will be reduced. This includes credits available for paid sick and family leave (as specified in the Families First Coronavirus Response Act) and the Work Opportunity Tax Credit. In addition, if your business receives a small business interruption loan under the CARES Act’s paycheck protection program (PPP) , you cannot claim the employee retention credit.

Employer Payroll Tax Deferral

This CARES Act tax relief provision allows you to defer your payment of the 6.2% social security tax, up to the maximum wage limit. This deferral applies to payroll taxes incurred from March 27 through Dec. 31, 2020.

If you take advantage of this provision, you can wait to pay 50% of the deferred taxes until Dec. 31, 2021. The remaining 50% would then be due by Dec. 31, 2022. There will be penalties for late payments, so be sure to stick to those deadlines. If your organization uses a third-party payroll processor, they will not be held liable for late payments. The responsibility lies with you as the employer to fulfill your tax obligation.

Note that we are still awaiting IRS guidance and forms regarding how to take advantage of this option. And as with the employee retention credit, if your business participates in the PPP loan program, you won’t be eligible for the deferral provision.

Payroll Tax Credits Under the Families First Coronavirus Response Act (FFCRA)

You can claim a refundable payroll tax credit to offset the paid sick or family leave you grant employees under the Expanded Family Medical Leave Act (MFLA) requirement. This credit equals 100% of qualified sick and family paid leave wages paid in that calendar quarter.

An employer is eligible only if subject to the terms of the Paid Sick and Family Leave Act. This includes:

  • Private employers with fewer than 500 employees
  • Certain public employers
  • Federal employers with employees covered by Title II of the FMLA

The sick or family leave you pay out can run as high as $10,000 per quarter per employee. Claiming this payroll credit can greatly reduce your burden as you try to keep your staff employed and financially stable. For leave paid under the FFCRA, the credit amount is limited to $511 per day for sick leave and $200 per day for child care leave. The credit is available beginning with FFCRA wages paid from April 1 through Dec. 31, 2020.

Note that this credit applies to your portion of your employees’ Social Security and Medicare taxes. If the credits you receive exceed your liability on those taxes, the excess is refunded directly to you.

As with most coronavirus-related legislation, these CARES Act tax relief measures are still evolving. While they have been signed into law, questions will arise as organizations begin to use them.

As a result, the IRS will develop guidance and clarifications to provide answers. Our tax team is keeping its eyes peeled for these developments and keep you informed. Together, we can help keep Americans working to the best of our abilities!

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.