The CARES Act - provisions for expanded unemployment benefits
Comprehensive Relief for Small Business and Self-Employed Clients
Your official source: your state’s department of labor and workforce. For SC residents, https://dew.sc.gov/covid-hub
• Workers will be eligible for a $600 weekly boost on top of regular state unemployment benefits.
• Gig workers, freelancers, and the self-employed are all eligible.
• The SCDEW has updated their application to include self-employed workers.
• Unemployment application systems are overwhelmed so keep trying.
• If employees are still employed but making a fraction of their regular pay, they can qualify for benefits to cover the difference.
If you are considering temporarily laying off your workforce, look into filing a claim on behalf of your workers. You will be able to rehire them once funding is available to your business. If you are self-employed and work has dried up, apply for benefits.
Employee Retention Credit
Your official source: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
• Employers with fully or partially suspended operation during 2020 due to government orders to limit commerce, travel or group meetings or those with a significant decline in gross receipts during the calendar quarter, qualify for this benefit.
• The payroll credit is 50% of wages paid, including qualified health plan expenses, capped at wages of $10,000 per employee, i.e. a maximum credit of $5,000 per employee.
• The credit will be provided in the form of a refundable payroll tax credit on the employer’s Form 941 for the quarter.
• Employers may withhold their payroll tax payments up to the credits they will receive for the quarter.
• Employer’s may receive both the benefits on the Families First Coronavirus Act for expanded sick and family leave and the Employee Retention Credit, but not on the same wages.
NOTE: SC withholding payments as well as sales tax are deferred until June 1, 2020 https://dor.sc.gov/emergencies. Please check your state’s revenue website for potential deferral dates.
Not ALL employers will qualify but at this time, under the IRS’s wording of those affected, we feel most will. We don’t have guidance on what may be required to substantiate the decline in operations. We suggest keeping a log of all the ways this pandemic is affecting daily business.
For example, if you are a realtor, you may want to record showings and listings to compare with this time last year, a contractor may see a delay in delivery of materials or may have a project start date pushed back, an attorney may have to delay work because courts are closed. This log will help create a paper trail.
Delaying Payment of Employer’s Social Security Tax
Your official source: we were unable to find an updated IRS page for this provision currently. Here is a link to a good article that lays out the benefit and discusses the pit-falls: https://www.lanepowell.com/Our-Insights/200505/Who-Really-CARES-How-the-Delayed-Payment-of-Employer-Payroll-Taxes-Will-Help-Business-Until-it-Hurts
• Employers may withhold the Social Security tax portion of payroll taxes (6.2% of Social Security Wages) from now through the end of the year. Note: this does not apply to the employer’s Medicare portion.
• Self-employed individuals are afforded the same delay.
• 50% of the withheld Social Security will be payable December 31, 2021 with the final 50% due December 31, 2022.
• Employers that receive a loan under the SBA’s Payroll Protection Program will not be eligible for this delay.
This provision is tricky, at best. If the employer is applying for the 7(a) PPP loan and has the funds to pay employees and tax payments, you may want to forego this option.
Note that if the employer qualifies for the Employee Retention Credit, the employer could withhold all payments up to the $5,000 per employee anyway. If cash flow is tight, you could potentially retain the tax now and pay it in once the PPP funds are received.
Self-employed individuals will not owe estimated tax payments until June 15th anyway so by then, they should know if they have been approved for a PPP loan. Be very careful with payroll taxes as the IRS is not lenient if these amounts are not paid in full when due, even if that date is a year and a half from now.
If you have any questions about COVID-19 comprehensive relief for small business and self-employed, please get in touch.